Question :
21. Under the equity method, the investor recognizes as revenue (expense) : 1245753
21. Under the equity method, the investor recognizes as revenue (expense) each period _____. The investor recognizes dividends received from the investee as a(n) _____.
A. only when it receives dividends; a return (reduction) of investment.
B. only when it receives dividends; income
C. its share of the net income (loss) of the investee; a return (reduction) of investment.
D. its share of the net income (loss) of the investee; income
E. all of the net income (loss) of the investee; a return (reduction) of investment.
22. U.S. GAAP and IFRS require firms to account for minority, active investments, using the _____ method.
A. cost
B. equity
C. fair market value
D. consolidation
E. lower of cost or market
23. The rationale for the equity method is that it better measures an investor’s income from investing activities when, because of its ownership interest, it
A. can exert control over the operations and dividend policy of the investee.
B. can exert significant influence over the operations and dividend policy of the investee.
C. cannot exert significant influence over the operations and dividend policy of the investee.
D. can exert control over the operations and dividend policy of the investor.
E. can exert significant influence over the operations and dividend policy of the investor.
24. Paula Company measures its investments in available-for-sale marketable securities
A. at cost on the balance sheet and recognizes income only when it receives a dividend (revenue) or sells some of the securities at a gain or loss.
B. at fair value on the income statement and recognizes income when it receives a dividend (revenue) .
C. at cost on the balance sheet and recognizes income only when it receives a dividend (revenue).
D. at fair value on the balance sheet and recognizes income only when it receives a dividend (revenue) or sells some of the securities at a gain or loss.
E. at cost on the balance sheet and recognizes income only when it sells some of the securities at a gain or loss.
25. Paula Company recognizes unrealized changes in the fair value of available-for-sale securities in
A. net income.
B. retained earnings.
C. additional paid-in-capital.
D. other comprehensive income, not in earnings.
E. none of the above
26. The equity method records the initial purchase of an investment in voting common stock at _____. Each period, the investor treats as revenue its share of the _____ of the investee. The investor treats dividends declared by the investee as _____.
A. acquisition cost; dividends; income
B. acquisition cost; periodic earnings; a reduction of the investor’s investment in stock of the investee account
C. present value of future cash flows; dividends; a reduction of the investor’s investment in stock of the investee account
D. present value of future cash flows; periodic earnings; a reduction of the investor’s investment in stock of the investee account
E. future value of present cash flows; dividends; a reduction of the investor’s investment in stock of the investee account
27. Marcoff Corporation acquires 30% of the outstanding voting common shares of the Invicta Corporation for $600,000. Marcoff Corporation acquires the investment in Invicta Corporation by buying previously issued shares of Invicta Corporation from other investors.
The entry to record the acquisition is:
A. Investment in Stock of Invicta Corporation . . . . . . . . . . . . . .600,000
Marketable Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .600,000
B. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
C. Investment in Stock of Invicta Corporation . . . . . . . . . . . . . .600,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
D. Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
E. Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
28. Penney Corporation acquires 30% of the outstanding voting common shares of the Instat Corporation for $600,000. Penney Corporation acquires the investment in Instat Corporation by buying previously issued shares of Instat Corporation from other investors.
Between the time of the acquisition and the end of Penney Corporation’s next accounting period, Instat Corporation reports earnings of $80,000. Penney Corporation records the following journal entry:
A. Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
Investment in Stock of Instat Corporation . . . . . . . . . . . . . . . . . .24,000
B. Investment in Stock of Instat Corporation . . . . . . . . . . . . . . . 24,000
Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
C. Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Investment in Stock of Instat Corporation . . . . . . . . . . . . . . . . . 80,000
D. Investment in Stock of Instat Corporation . . . . . . . . . . . . . . . 80,000
Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
E. Investment in Stock of Instat Corporation . . . . . . . . . . . . . . . 24,000
Investment Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
29. Marcoff Corporation acquires 30% of the outstanding voting common shares of the Invicta Corporation for $600,000. Marcoff Corporation acquires the investment in Invicta Corporation by buying previously issued shares of Invicta Corporation from other investors.
If Invicta Corporation declares and pays a dividend of $30,000 to holders of its common stock, Marcoff Corporation records the following journal entry:
A. Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Investment in Stock of Invicta Corporation . . . . . . . . . . . . . . . . . . 9,000
B. Investment in Stock of Invicta Corporation . . . . . . . . . . . . . . . 9,000
Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
C. Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Investment in Stock of Invicta Corporation . . . . . . . . . . . . . . . . . 9,000
D. Investment in Stock of Invicta Corporation . . . . . . . . . . . . . . . 9,000
Investment Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
E. Investment in Stock of Invicta Corporation . . . . . . . . . . . . . . . 9,000
Investment Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
30. Power Corporation acquires 30% of the outstanding voting common shares of the Inroad Corporation for $600,000. Power Corporation acquires the investment in Inroad Corporation by buying previously issued shares of Inroad Corporation from other investors.
Power Corporation records income earned by Inroad Corporation as a(n) _____, while the dividend _____, and _____ account.
A. increase in investment; returns part of the investment; decreases the Investment in Stock of Inroad Corporation
B. increase investment revenue; returns part of the investment; decreases the Investment in Stock of Inroad Corporation
C. increase investment revenue; decreases investment revenue; increases the Investment in Stock of Inroad Corporation
D. decrease in investment; returns part of the investment; increases the Investment in Stock of Inroad Corporation
E. decrease in investment; decreases investment revenue; increases the Investment in Stock of Inroad Corporation
