110.Orlov Corporation purchased 7,900 shares of Matsey Corporation common stock for $40 per share on January 1, 20×7. Matsey reported net income of $120,000 for 20×7 and paid dividends of $45,000 during 20×7. As of December 31, 20×7, the market value of Matsey Corporation common stock was $40 per share. Assuming the shares owned by Orlov represent 30 percent of the total outstanding stock of Matsey, Orlov Corporation should report the long-term investment on December 31, 20×7, at a carrying value of
a.
$329,500.
b.
$316,000.
c.
$338,500.
d.
$352,000.
111.West Corporation purchased 15,000 shares of Luffy Corporation common stock for $60 per share on January 2, 20×7. Luffy Corporation reported net income of $1,500,000 for 20×7 and paid dividends of $300,000 during 20×7. Luffy has a total of 50,000 shares of common stock outstanding. West Corporation should report income from this long-term investment for 20×7 of
a.
$540,000.
b.
$360,000.
c.
$450,000.
d.
$90,000.
112.West Corporation purchased 15,000 shares of Luffy Corporation common stock for $60 per share on January 2, 20×7. Luffy Corporation reported net income of $1,500,000 for 20×7 and paid dividends of $300,000 during 20×7. Luffy has a total of 50,000 shares of common stock outstanding. West Corporation should report the long-term investment at a carrying value on December 31, 20×7, of
a.
$900,000.
b.
$1,350,000.
c.
$1,260,000.
d.
$990,000.
113.The equity method generally should be used to account for an investment in stock when the level of ownership is
a.
between 20 and 50 percent.
b.
10 percent or more.
c.
between 10 and 20 percent.
d.
less than 10 percent.
114.When the cost-adjusted-to-market method is used to account for a long-term investment in stock of another company, the carrying value of the investment is directly affected by
a.
the earnings of the investee.
b.
the dividend distributions of the investee.
c.
the earnings and dividend distributions of the investee.
d.
neither the earnings nor the dividends of the investee.
115.When the equity method is used to account for a long-term investment in stock of another company, the carrying value of the investment is affected by
a.
neither the earnings nor the dividends of the investee.
b.
an excess of market price over cost.
c.
declines in the market value of the stock.
d.
the earnings and dividends of the investee.
116.For available-for-sale equity securities, the Unrealized Loss on Long-Term Investments account should be reported as a(n)
a.
“other loss” item on the income statement.
b.
prior period adjustment.
c.
separate item in the stockholders’ equity section of the balance sheet.
d.
extraordinary item on the income statement.
117.When a corporation owns more than 50 percent of the voting stock in another corporation, it usually should report its investment by using (the)
a.
consolidated financial statements.
b.
equity method.
c.
cost adjusted to market method.
d.
book value method.
118.Consolidated financial statements are useful because
a.
investors of the parent company want a clear financial picture of the total economic entity.
b.
they are much more detailed than the statements for the individual companies.
c.
minority shareholders need the consolidated information to make good investment decisions.
d.
the parent and subsidiaries constitute a single legal entity, and the financial statements should reflect that fact.
119.Which of the following entries would not require an eliminating entry when one is preparing consolidated financial statements?
a.
Investment in subsidiary
b.
Sale to customer
c.
Amount owed by parent to subsidiary
d.
Amount owed by subsidiary to parent
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