Question : 51. U.S. GAAP view investments of less than 20 percent of : 1230385

51. U.S. GAAP view investments of less than 20 percent of the voting stock of another company as 
A. minority, passive investments
B. minority, active investments
C. majority, passive investments
D. majority, active investments
E. a controlled entity

52. 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

53. 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.

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

55. 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

56. If Woodbury Company pays $55,000 in dividends to its corporate investor LMT Corporation (LMT owns 35% of The Woodbury Company), what entry should LMT 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 Woodbury Company                     55,000
D. Cash                                                       55,000
   Additional Paid-in Capita                                    55,000
E. Cash                                                       55,000                  
   Common Stock- Woodbury Company                 55,000

57. 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

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

59. Management and shareholders may desire to have legally separate corporations because 
A. it may insulate a profitable corporation from an unprofitable corporation’s insolvency and creditors
B. it may simplify compliance with state tax and regulation requirements
C. it may allow a company to enter a new line of business with a minimum of investment and risk     
D. all of the above
E. none of the above

60. (CMA adapted, Dec 92 #9) In a business combination that is accounted for as a purchase and does not create negative goodwill, the assets of the acquired company are to be recorded on the books of the acquiring company at 
A. original cost.
B. original cost less accumulated depreciation.
C. fair market value.
D. book value.
E. liquidation value.