Question : 41. In Year 2, ABC Corp. acquired a 15% interest in : 1245755

41. In Year 2, ABC Corp. acquired a 15% interest in XYZ, Inc., for $50,000. During the year, XYZ paid dividends of $10,000 and had net income of $30,000. ABC sold the shares of XYZ for $65,000 cash. What entry will ABC make to record the sale? 
A. Cash                            65,000
    Gain on Sale                         12,000
         Investment in XYZ               53,000
B. Cash                            65,000
    Gain on Sale                          9,000
         Investment in XYZ               56,000
C. Cash                            65,000
    Additional Paid-in Capital   15,000
         Investment in XYZ               50,000
D. Cash                            65,000                       
    Gain on Sale                         15,000
         Investment in XYZ               50,000
E. Cash                            65,000                       
    Treasury Stock                     15,000
         Investment in XYZ               50,000

42. A minority, active investment is generally 
A. an investment in another company’s stock of less than 15%.
B. an investment in another company’s stock of between 15% and 60%.
C. an investment in another company’s stock of between 20% and 50%.
D. dependent upon management’s intent.
E. dependent upon the expected holding period.

43. If Barton Company purchases a minority active interest in Laramie Company for $150,000, Barton will make which of the following entries to record the purchase using the equity method? 
A. Equity in Laramie Company                    150,000
        Cash                                                        150,000
B. Investment in Laramie Company             150,000
        Cash                                                        150,000
C. Deferred Revenue–Laramie Company    150,000
       Cash                                                         150,000
D. Common Stock–Laramie Company         150,000
       Cash                                                         150,000
E. Paid-in-Capital–Laramie Company         150,000
       Cash                                                         150,000

44. Pareto Corporation owns 40% of Spring Corporation. During Year 3, Spring has net income of $60,000. What entry should Pareto record related to its investment in Spring during Year 3? 
A. Investment in Spring Corp.       24,000                  
   Equity in Earnings of Affiliate            24,000
B. Dividend Receivable                24,000
   Dividend Income                                 24,000
C. Investment Receivable             24,000
   Investment Income                              24,000
D. Investment in Spring Corp.      24,000
   Investment Income                              24,000
E. Investment in Spring Corp.      24,000
   Cash                                                    24,000

45. If Wabasso Company pays $55,000 in dividends to its corporate investor Lament Corporation (Lament owns 35% of The Wabasso Company), what entry should Lament Corporation record when it receives the dividends? 
A. Cash                                                       55,000
   Dividend Income                                                 55,000
B. Cash                                                       55,000
   Investment Income                                               55,000
C. Cash                                                       55,000                  
   Investment in Wabasso Company                     55,000
D. Cash                                                       55,000
   Additional Paid-in Capital                                    55,000
E. Cash                                                       55,000                  
   Common Stock- Wabasso Company                 55,000

46. InvestCo purchases 30% of NewCo’s stock on January 1, Year 1, for $100,000. In Year 1, NewCo paid total dividends of $30,000 and had a net income of $70,000. In Year 2, NewCo suffered a loss of $20,000 and paid no dividends. On January 1, Year 3, InvestCo sells its investment in NewCo for $105,000. How is the sale recorded? 
A. Cash                               105,000      
   Loss on Sale                                 1,000
   Investment in NewCo                106,000
B. Cash                               105,000
   Loss on Sale                    4,000
   Investment in NewCo                109,000
C. Cash                               105,000
   Loss on Sale                  10,000
   Investment in NewCo                 115,000
D. Cash                               105,000
   Gain on Sale                                14,000
   Investment in NewCo                   91,000
E. Cash                               105,000
   Treasury Stock                            14,000
   Investment in NewCo                   91,000

47. Pense Co. purchased 40% of the stock of Stretch Co. in Year 1 for $100,000. Stretch had net income in Year 1 of $50,000 and net income in Year 2 of $30,000. Stretch also paid total dividends of $20,000 in Year 2. On January 1, Year 3, Pense Co. sold its investment in Stretch Co. to GE Capital Corporation (GE) for $130,000. What entry would Pense Co. make to record the sale of Stretch Co.? 
A. Cash                            130,000               
   Gain on Sale                                 6,000
   Investment in Stretch                   124,000
B. Cash                            130,000
Loss on Sale                    2,000
   Investment in Stretch                   132,000
C. Cash                            130,000
   Loss on Sale               10,000
   Investment in Stretch                   140,000
D. Cash                            130,000
   Loss on Sale                30,000
   Investment in Stretch                   160,000
E. Cash                            130,000
   Loss on Sale                20,000
   Investment in Stretch                   150,000

48. For which type of investments would unrealized increases and decreases be recorded directly in an owners’ equity account? 
A. Equity method securities
B. Available-for-sale securities
C. Trading securities
D. Held-to-maturity securities
E. None of these answer choices is correct.

49. The equity method of accounting for an investment in the common stock of another company should be used when the investment 
A. is composed of common stock and it is the investor’s intent to vote the common stock.
B. ensures a source of supply such as raw materials.
C. enables the investor to exercise significant influence over the investee.
D. gives the investor voting control over the investee.
E. None of these answer choices is correct.

50. When an investor uses the equity method to account for investments in common stock, cash dividends received by the investor from the investee should be recorded as 
A. an increase in the investment account.
B. a deduction from the investment account.
C. dividend revenue.
D. a deduction from the investor’s share of the investee’s profits.
E. None of these answer choices is correct.