Question : 31. Pager Corporation acquires 30% of the outstanding voting common shares : 1245754

31. Pager Corporation acquires 30% of the outstanding voting common shares of the Intercomm Corporation for $600,000. Pager Corporation acquires the investment in Intercomm Corporation by buying previously issued shares of Intercomm Corporation from other investors.

Suppose that Intercomm Corporation reports earnings of $100,000 and pays dividends of $40,000, during the next accounting period. As a result, Pager Corporation’s entries are:  
A. Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
       Investment in Stock of Intercomm Corporation . . . . . . . . . . . . . . .  .  .  .30,000
Investment in Stock of Intercomm Corporation. . . . . . . . . . .. . . . . 12,000 
       Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           12,000 
B. Investment in Stock of Intercomm Corporation . . . . . . . . . . . . . . . 30,000
       Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   30,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   12,000 
       Investment in Stock of Intercomm Corporation. . . . . . . . . . . . . . . . . . . . 12,000
C. Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . .100,000
       Investment in Stock of Intercomm Corporation . . . . . . . . . . . . . . .  .  .  100,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   12,000 
       Investment in Stock of Intercomm Corporation. . . . . . . . . . . . . . . . . . . . 12,000 
D. Investment in Stock of Intercomm Corporation . . . . . . . . . . . . . . . 100,000
       Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  100,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   12,000 
       Investment in Stock of Intercomm Corporation. . . . . . . . . . . . . . . . . . . . 12,000 
E. Investment in Stock of Intercomm Corporation . . . . . . . . . . . . . . . 30,000
       Investment Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    30,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   12,000 
       Investment in Stock of Intercomm Corporation. . . . . . . . . . . . . . . . . . . . 12,000 

32. Pagoli Corporation acquires 30% of the outstanding voting common shares of the Inform Corporation for $600,000. Pagoli Corporation acquires the investment in Inform Corporation by buying previously issued shares of Inform Corporation from other investors.

Between the time of the acquisition and the end of Pagoli Corporation’s next accounting period, Inform Corporation reports earnings of $80,000; and pays a dividend of $30,000 to holders of its common stock.

Inform Corporation reports earnings of $100,000 and pays dividends of $40,000 during the subsequent accounting period.

Pagoli Corporation’s Investment in Stock of Inform Corporation  account now has a balance of:  
A. $609,000 
B. $621,000
C. $633,000
D. $642,000
E. $657,000

33. acker Corporation acquires 30% of the outstanding voting common shares of the Insight Corporation for $600,000. Packer Corporation acquires the investment in Insight Corporation by buying previously issued shares of Insight Corporation from other investors.

Between the time of the acquisition and the end of Packer Corporation’s next accounting period, Insight Corporation reports earnings of $80,000; and pays a dividend of $30,000 to holders of its common stock.

Insight Corporation reports earnings of $100,000 and pays dividends of $40,000 during the subsequent accounting period.

Assume now that Packer Corporation sells one-fourth of its investment in Insight Corporation for $165,000. The entry is as follows:  
A. Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    165,000
        Investment in Stock of Insight Corporation. . . . . . . . . . . . . . . . . . . . . 158,250
        Gain on Sale of Investment in Stock of Insight Corporation. . . . . . . . . . 6,750
B. Investment in Stock of Insight Corporation. . . . . . . . . . . . . . . 158,250
Gain on Sale of Investment in Stock of Insight Corporation. . . . 6,750
        Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .  .  . .165,000
C. Cash. . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . .    165,000
        Investment in Stock of Insight Corporation. . . . . . . . . . . . . . . . . . . . . 158,250
        Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6,750
D. Investment in Stock of Insight Corporation. . . . . . . . . . . . . . . 158,250
Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . .  6,750
        Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165,000
E. Investment in Stock of Insight Corporation. . . . . . . . . . . . . . . 158,250
Gain on Sale of Investment in Stock of Insight Corporation. . . .   6,750
       Equity in Earnings of Affiliate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   165,000

34. Potion Corporation acquires 30% of the outstanding voting common shares of the Formula Corporation for $600,000. Potion Corporation acquires the investment in Formula Corporation by buying previously issued shares of Formula Corporation from other investors.

Between the time of the acquisition and the end of Potion Corporation’s next accounting period, Formula Corporation reports earnings of $80,000; and pays a dividend of $30,000 to holders of its common stock.

Formula Corporation reports earnings of $100,000 and pays dividends of $40,000 during the subsequent accounting period.

During the next accounting period, Potion Corporation sells one-fourth of its investment in Formula Corporation for $165,000.

After the sale, the balance in the Investment in Stock of Formula Corporation account is:  
A. $462,750
B. $465,750
C. $474,750
D. $481,750
E. $486,750

35. Parton Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Parton Corporation acquires the investment in Import Corporation by buying previously issued shares of Import Corporation from other investors.
When Parton Corporation acquired 30% of Import Corporation’s common shares for $600,000, Import Corporation’s total shareholders’ equity was $1.5 million. Parton Corporation’s cost exceeds the carrying value of the net assets acquired by $150,000 [ $600,000 – (0.30 x $1,500,000)]. Parton Corporation may pay this premium because 
A. the fair values of Import’s net assets differ from their carrying values, only.
B. of unrecorded assets (for example, trade secrets), only.
C. the fair values of Import’s net assets differ from their carrying values and/or unrecorded assets (for example, trade secrets).
D. the liquidation values of Import’s net assets differ from their carrying values, only.
E. of unrecorded liabilities (for example, contingent liabilities), only.

36. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors.

When Purchaser Corporation acquired 30% of Investee Corporation’s common shares for $600,000, Investee Corporation’s total shareholders’ equity was $1.5 million. Purchaser Corporation’s cost exceeds the carrying value of the net assets acquired by $150,000 [ $600,000 – (0.30 x $1,500,000)].   What is/are the accounting procedure(s) for this premium? 
A. The investor’s accounting for the excess purchase price embedded in the Investment in Stock of Investee Corporation account is similar to the treatment of an excess purchase price in a business combination.
B. The investor identifies any recorded assets and liabilities with fair values that differ from their carrying values, as well as any unrecorded assets and liabilities.
C. The investor attributes the excess purchase price to the assets and liabilities with fair values that differ from their carrying values, as well as any unrecorded assets and liabilities, based on the investor’s proportionate ownership interest.
D. The investor attributes the excess purchase price to the assets and liabilities with fair values that differ from their carrying values, as well as any unrecorded assets and liabilities, based on the investor’s proportionate ownership interest and any remaining excess purchase price to goodwill.
E. all of the above

37. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors. When Purchaser Corporation acquired 30% of Investee Corporation’s common shares for $600,000, Investee Corporation’s total shareholders’ equity was $1.5 million. Purchaser Corporation’s cost exceeds the carrying value of the net assets acquired by $150,000 [ $600,000 – (0.30 x $1,500,000)].  

Purchaser Corporation attributes the $150,000 excess purchase price as follows: $100,000 to remeasure buildings and equipment to fair value and $50,000 to goodwill.  Which of the following is/are true? 
A. Purchaser Corporation does not reclassify this excess out of its Investment in Stock of Investee Corporation account to Buildings and Equipment and to Goodwill.
B. Purchaser Corporation must amortize (or depreciate) any amount attributed to assets with limited lives.
C. Purchaser Corporation must depreciate the $100,000 attributed to buildings and equipment over their remaining useful lives.
D. U.S. GAAP and IFRS do not permit the investor to amortize the excess purchase price attributed to goodwill and other assets with indefinite lives. Instead, the investor must test the investment account annually for possible impairment.
E. all of the above

38. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors.

Investee Corporation’s other comprehensive income during the first period is as follows:

Unrealized Holding Gains from Marketable Securities. . .$ 3,000
Unrealized Losses from Cash Flow Hedges . . . . . . . . . .   (2,000)
Other Comprehensive Income. . . . . . . . . . . . . . . . . . . .    $ 1,000

Purchaser Corporation would make the following entry to recognize its share of the items of other comprehensive income of Investee Corporation: 
A. Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Realized Holding Losses from Cash Flow Hedges
(Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . 600
      Realized Holding Gains from Marketable Securities
     (Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . . . . .900
B. Investment in Stock of Investee Corporation . . . . . . . . . . 300
Realized Holding Losses from Cash Flow Hedges
(Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . 600
      Realized Holding Gains from Marketable Securities
     (Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . . . . .900
C. Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Unrealized Holding Losses from Cash Flow Hedges
(Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . 600
      Unrealized Holding Gains from Marketable Securities
     (Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . . . . .900
D. Investment in Stock of Investee Corporation . . . . . . . . . . 300
Unrealized Holding Losses from Cash Flow Hedges
(Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . 600
      Unrealized Holding Gains from Marketable Securities
     (Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . . . . .900
E. none of the above

39. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors.

Which of the following is/are true?  
A. On the balance sheet, an investment accounted for with the equity method appears among noncurrent assets.
B. On the balance sheet, the amount shown generally equals the acquisition cost of the shares, plus Purchaser Corporation’s share of Investee Corporation’s undistributed earnings (or losses) since the date Purchaser Corporation acquired the shares, plus or minus amortization of any excess cost at the date of acquisition attributable to assets with limited lives.
C. On the income statement, Purchaser Corporation  reports each period its share of Investee Corporation’s income (or loss) as revenue (or expense), as well as any amortization of excess cost.
D. Purchaser Corporation  also recognizes its share of the investee’s other comprehensive income.
E. all of the above

40. 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.