Question :
61. Heartfelt Company owns a 40% interest in the voting common : 1228454
61. Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation, accounted for using the equity method. During 2010, Candle Corporation reported net income of $100,000 and declared and paid cash dividends of $10,000. The carrying value of the Candle investment was $500,000 on January 1, 2010. At what amount is the Candle investment reported on the December 31, 2010 balance sheet?
A. $500,000.
B. $540,000.
C. $496,000.
D. $536,000.
62. On January 1, 2010, Palmer, Inc. bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000. The equity method of accounting for this investment is used. During 2010, Arnold Corporation reported $30,000 of net income and paid $10,000 in cash dividends. At the end of 2010, the shares had a market value of $150,000. At what amount should the Arnold investment be reported at on the December 31, 2010 balance sheet?
A. $150,000
B. $158,000
C. $145,000
D. $148,000
63. On January 1, 2010, Palmer, Inc. bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000. The equity method of accounting for this investment is used. During 2010, Arnold Corporation reported $30,000 of net income and paid $10,000 in cash dividends. At the end of 2010, the shares had a market value of $150,000. How much income will Palmer report from the Arnold investment during 2010?
A. $12,000
B. $30,000
C. $10,000
D. $4,000
64. On January 1, 2010, Calas Company acquired 40% of the outstanding voting stock of Nick Company as a long-term investment. During 2010, Nick reported net income of $10,000 and declared and paid dividends of $4,000. During 2010, Calas Company should report “Income from investee earnings” of
A. $3,000.
B. $4,000.
C. $2,400.
D. $10,000.
65. On January 1, 2010, Turtle Inc. bought 30% of the outstanding shares of Shell Corporation at a cost of $150,000. The equity method of accounting for this investment is used. During 2010, Shell Corporation reported $40,000 of net income and paid $5,000 in cash dividends. At the end of 2010, the shares had a market value of $160,000. How much investment income will Turtle report from the Shell investment during 2010?
A. $12,000
B. $40,000
C. $5,000
D. $1,500
66. On January 1, 2010, Turtle Inc. bought 30% of the outstanding shares of Shell Corporation at a cost of $150,000. The equity method of accounting for this investment is used. During 2010, Shell Corporation reported $40,000 of net income and paid $5,000 in cash dividends. At the end of 2010, the shares had a market value of $160,000. What investment balance will be reported on Turtle’s December 31, 2010 balance sheet?
A. $150,000
B. $160,000
C. $160,500
D. $162,000
67. When is the equity method not used to account for long-term investments in stocks?
A. When the investment is 30% of the voting stock and significant influence can be achieved.
B. When the investment is 15% and significant influence can be achieved.
C. When the investment is greater than 50% of the voting stock and control is achieved.
D. When the investment is 40% of the voting stock and significant influence can be achieved.
68. Which of the following statements is false?
A. Dividends received from stock investments increase cash flows from investing activities.
B. Income from investments accounted for using the equity method doesn’t create cash flows.
C. Sale of stock investments is a cash inflow from investing activities.
D. Dividends received from stock investments accounted for using the equity method don’t create net income but do create cash flows.
69. Which of the following statements is correct?
A. When the equity method is used to account for an investment in an investee, the reported share of investee income must be added to net income on the statement of cash flows.
B. When the equity method is used to account for an investment in an investee, the cash dividends received are cash inflow from investing activities.
C. Any realized or unrealized gains or losses that were reported on the income statement under the market value method must be removed from net income in the operating activities section of the statement of cash flows.
D. When the equity method is used to account for an investment in an investee, the reported share of investee dividends must be deducted from net income on the statement of cash flows.
70. Photo Finish Corporation bought a 40% interest in the voting stock of Click It Corporation’s $1 par value common stock for $20 million (2 million shares at a $10 market price) on March 31, 2011. On December 31, 2011, Click It paid a $1 million cash dividend declared earlier in 2011 and reported net income for the year ended 2011 of $10 million. On December 31, 2011, Click It’s stock was trading at $11.50 per share.
What effect will the dividend have on Photo Finish’s financial statements?
A. It would increase cash and increase investment income.
B. It would increase cash and decrease investment in Click It.
C. It would increase cash and increase net unrealized gains/losses.
D. It would increase cash and increase the allowance to value at market account.
