Question : 21) Under the equity method of accounting for stock investments, : 1230231

21) Under the equity method of accounting for stock investments, the Investment account is decreased for the receipt of a dividend because:

A) it is assumed that income will also be received.

B) the dividend decreases the investee’s owners’ equity, and therefore the investor’s investment decreases.

C) the dividend decreases the investee’s owners’ equity, and therefore the investor’s investment increases.

D) no cash is received.

22) If the equity method is used to account for a long-term investment in common stock, cash dividends received from the investee are recorded by the investor as:

A) a credit to the Investment account.

B) a credit to the Dividend Revenue account.

C) a debit to the Investment account.

D) no entry. There is no entry made to record dividends.

23) Under the equity method of accounting for stock investments, the Investment account is increased when the:

A) investee company reports net income.

B) investee company pays a dividend.

C) investee company reports a loss.

D) the investment is sold at a gain.

24) Acme Company owns 35% of Superior Company. Superior Company paid $35,000 cash dividends for the year. Acme Company’s journal entry to record the dividends includes a:

A) credit to Long-Term Investments for $12,250.

B) credit to Long-Term Investments for $35,000.

C) credit to Dividend Revenue for $12,250.

D) credit to Dividend Revenue for $35,000.

25) Under the equity method, a company should report an unrealized gain on a long-term investment:

A) when the market price is greater than cost.

B) when the market price is less than cost.

C) if the investee stock has fallen below the investors cost.

D) in no instance. No adjusting entry is made.

26) A gain or loss on the sale of a long-term investment using the equity method is calculated by taking the difference between cash received and:

A) cost of the long-term investment, adjusted by the investees net income, net loss and cash dividends, while the investment was held by the investor.

B) lower-of-cost-or-market value of the long-term investment.

C) cost of the long-term investment.

D) market value of the long-term investment.

27) Under the equity method, if the Investment is sold at a gain, the gain is:

A) reported as operating revenue.

B) reported on the balance sheet as a long-term asset.

C) reported in the Other Revenue section of the income statement.

D) contributes to gross profit on the income statement.

28) Under the equity method, if the investee company has a net loss, then the investor company will:

A) debit the Investment account for their share of the net loss.

B) credit the Loss on Sale of Investment account for their share of the net loss.

C) credit the Investment account for their share of the net loss.

D) debit or credit the Investment account based on market value.

29) Dodson Company owns 17,500 of the 50,000 shares of outstanding common stock of Ferguson Company. Dodson Company should account for this investment using the:

A) market method.

B) equity method.

C) lower-of-cost-or-market method.

D) consolidation method.

30) Berger Corporation paid $800,000 for 100,000 shares of Oakley Company’s common stock, which represents 40% of Oakley’s outstanding common stock. Oakley reported net income of $200,000 and paid cash dividends of $60,000. Berger should report the investment in Oakley Company on its balance sheet at:

A) $800,000.

B) $744,000.

C) $824,000.

D) $856,000.