Advanced Accounting Test 1 Graded A+

Advanced Accounting Test 1 Graded A+ On January 1, 2018, Jordan Inc. acquired 30% of Nico Corp. Jordan used the equity method to account for the investment. On January 1, 2019, Jordan sold two- thirds of its investment in Nico. It no longer had the ability to exercise significant influence over the operations of Nico. How should Jordan account for this change? A) Jordan should continue to use the equity method to maintain consistency in its financial statements. B) Jordan should restate the prior years' financial statements and change the balance in the investment account as if the fair-value method had been used since 2018. C) Jordan has the option of using either the equity method or the fair-value method for 2018 and future years. D) Jordan should report the effect of the change from the equity to the fair-value method as a retrospective change in accounting principle. - ANSWERJordan should use the fair-value method for 2019 and future years, but should not make a retrospective adjustment to the investment account. Tower Inc. owns 30% of Yale Co. and applies the equity method. During the current year, Tower bought inventory costing $66,000 and then sold it to Yale for $120,000. At year-end, only $24,000 of merchandise was still being held by Yale. What amount of intra-entity gross profit must be deferred by Tower? A) $ 6,480. B) $ 3,240. C) $10,800. D) $16,200. E) $ 6,610. - ANSWERB) $ 3,240. An upstream sale of inventory is a sale: A) Between subsidiaries owned by a common parent. B) With the transfer of goods scheduled by contract to occur on a specified future date. C) In which the goods are physically transported by boat from a subsidiary to its parent. D) Made by the investor to the investee. E) Made by the investee to the investor. - ANSWERE)