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.