Question :
11) When an investor owns between 20% and 50% of : 1230230
11) When an investor owns between 20% and 50% of the outstanding stock of another company, the ________ method is used to account for stock investments.
A) market value
B) equity
C) consolidated
D) historical cost.
12) An investor who owns 25% of the outstanding stock of another company should report the investment using the:
A) market value method.
B) consolidated method.
C) equity method.
D) historical cost method.
13) The method used to account for investments in which the investor has 35% of the investee’s voting stock and can significantly influence the decisions of the investee is the:
A) market value method.
B) consolidated method.
C) equity method.
D) historical cost method.
14) The investor should generally use the equity method of accounting for the investee if the investor owns what percentage of the outstanding stock of the investee?
A) 19%
B) 10%
C) 45%
D) More than 50%
15) The equity method of accounting for a stock investment should generally be used when the investor owns a level of stock ownership that:
A) gives the investor an insignificant influence over the investee.
B) usually indicates a plan to acquire a controlling interest in the investee company.
C) requires the investor to prepare consolidated financial statements.
D) gives the investor significant influence over the investee company.
16) Under the equity method, the Long-Term Investment account is debited when the:
A) investee reports net income.
B) investee reports net loss.
C) investor receives a cash dividend.
D) investment is sold.
17) A company that owns 40% of the common stock of another business recognizes revenue from the investment when:
A) the company sells the shares in the investee company.
B) the investee issues a cash dividend.
C) the investee recognizes net income.
D) the investee issues a stock dividend.
18) Wolverine Corporation owns 29% of Buckeye Corporation. Net income for Buckeye for the year is $250,000. The journal entry prepared by Wolverine Corporation includes a:
A) debit to Long-Term Investments for $177,500.
B) debit to Long-Term Investments for $72,500.
C) credit to Long-Term Investments for $177,500.
D) credit to Long-Term Investments for $72,500.
19) If an investor company owns 35% of the common stock of another business, income received from the investee company are generally recorded by the investor company by:
A) decreasing the investor company’s Common Stock account.
B) increasing the value of the investor’s Investment account.
C) increasing the Dividend Revenue account.
D) decreasing the value of the investor’s Investment account.
20) Under the equity method of accounting for long-term investments in common stock, when a cash dividend is received from the investee company:
A) the investor’s Investment account is increased.
B) the Dividend Revenue account is increased.
C) the investor’s Investment account is decreased.
D) no entry is necessary.
