ACC 311 Exam 1 Questions With 100%
Correct Answers | Verified
$1,247,500 CORRECT ANSWERS On January 1 of the current year, Barger Company
buys 150,000 shares of Booker, Inc.'s common stock for $1,200,000, the book value of
the shares. This purchase gave Barger 25% ownership in Booker and the ability to
significantly influence operating and financing decisions. At the time of the acquisition,
Booker had a total book value of $4,800,000. During the current year, Booker reported
net income of $700,000 and paid a $.85 per share dividend.
Barger elects to use the equity method of accounting. What is the balance in the
Investment in Booker account in the records of Barger Company at December 31, of the
current year?
$1,200,000
$1,247,500
$1,772,500
$1,900,000
$1,152,500
Cash 127,500
Investment in Booker, Inc 127,500 CORRECT ANSWERS On January 1 of the current
year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for
$1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in
Booker and the ability to significantly influence operating and financing decisions. At the
time of the acquisition, Booker had a total book value of $4,800,000. During the current
year, Booker reported net income of $700,000 and paid a $.85 per share dividend.
Using the equity method of accounting, what is the journal entry to record the receipt of
dividends during the current year?
Cash 127,500
Investment in Booker, Inc 127,500
Investment in Booker, Inc $175,000
Equity in Investee Income $175,000 CORRECT ANSWERS On January 1 of the
current year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for
$1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in
Booker and the ability to significantly influence operating and financing decisions. At the
time of the acquisition, Booker had a total book value of $4,800,000. During the current
year, Booker reported net income of $700,000 and paid a $.85 per share dividend.
Using the equity method of accounting, what is the journal entry to accrue the current
year earnings?
,Investment in Booker, Inc $175,000
Equity in Investee Income $175,000
$7,500.00 CORRECT ANSWERS Tara Company owns 30% of Hawkins, Inc. and
applies the equity method. During the current year, Hawkins buys inventory costing
$400,000 and sells it to Tara for $500,000. At the end of the year, only 25% of this
merchandise is still being held by Tara. What amount of unrealized gain must be
deferred by Hawkins in reporting on the equity method?
$937.50
$30,000.00
$25,000.00
$7,500.00
$100,000.00
A sale from an investor to its investee CORRECT ANSWERS What is a downstream
sale?
A sale from an investor to its investee
A sale from a producer to its outside supplier
A sale from an investee to its investor
A sale from one manufacturer to another
A sale from a small company to a large one
A sale from an investee to its investor CORRECT ANSWERS What is an upstream
sale?
A sale from an investor to its investee
A sale from a producer to its outside supplier
A sale from an investee to its investor
A sale from one manufacturer to another
A sale from a small company to a large one
, $512,500 CORRECT ANSWERS TunaCo purchases 25% of Stanley, Inc. on January 1
of the current year for $500,000. This acquisition gives TunaCo the ability to apply
significant influence to Stanley's operating and financing policies and TunaCo elects to
use the equity method of accounting. Stanley reports assets on that date of $1,600,000
with liabilities of $400,000. One building with a 15-year life has a book value of
$100,000 and a fair market value of $400,000. During the current year, Stanley, Inc.
reports net income of $140,000, while paying out dividends of $70,000 for the year.
What is the Investment in Stanley account balance in TunaCo's accounting records at
the end of the current year?
$500,000
$517,500
$530,000
$460,000
$512,500
$18,400 CORRECT ANSWERS Smith Company holds 20% of the outstanding shares
of Leef Greeting Cards and applies the equity method of accounting. For the current
year, Leef reports earnings of $100,000 and pays cash dividends of $22,000. During the
current year, Leef acquired inventory for $80,000, which was then sold to Smith for
$100,000. At the end of the current year, Smith continues to hold merchandise with a
transfer price of $40,000. Assuming no amortization expense related to this investment,
what Equity in Investee Income should Smith report in the current year?
$18,400
$-0-
$12,000
$14,000
$7,600
be increased by Norbin's share of Stice's earnings and decreased by Norbin's share of
Stice's losses. CORRECT ANSWERS Norbin Company uses the equity method to
account for its investment in Stice Company's common stock. After the acquisition date,
the investment account reported on Norbin's balance sheet would
be increased by Norbin's share of Stice's earnings and decreased by Norbin's share of
Stice's losses.
Correct Answers | Verified
$1,247,500 CORRECT ANSWERS On January 1 of the current year, Barger Company
buys 150,000 shares of Booker, Inc.'s common stock for $1,200,000, the book value of
the shares. This purchase gave Barger 25% ownership in Booker and the ability to
significantly influence operating and financing decisions. At the time of the acquisition,
Booker had a total book value of $4,800,000. During the current year, Booker reported
net income of $700,000 and paid a $.85 per share dividend.
Barger elects to use the equity method of accounting. What is the balance in the
Investment in Booker account in the records of Barger Company at December 31, of the
current year?
$1,200,000
$1,247,500
$1,772,500
$1,900,000
$1,152,500
Cash 127,500
Investment in Booker, Inc 127,500 CORRECT ANSWERS On January 1 of the current
year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for
$1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in
Booker and the ability to significantly influence operating and financing decisions. At the
time of the acquisition, Booker had a total book value of $4,800,000. During the current
year, Booker reported net income of $700,000 and paid a $.85 per share dividend.
Using the equity method of accounting, what is the journal entry to record the receipt of
dividends during the current year?
Cash 127,500
Investment in Booker, Inc 127,500
Investment in Booker, Inc $175,000
Equity in Investee Income $175,000 CORRECT ANSWERS On January 1 of the
current year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for
$1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in
Booker and the ability to significantly influence operating and financing decisions. At the
time of the acquisition, Booker had a total book value of $4,800,000. During the current
year, Booker reported net income of $700,000 and paid a $.85 per share dividend.
Using the equity method of accounting, what is the journal entry to accrue the current
year earnings?
,Investment in Booker, Inc $175,000
Equity in Investee Income $175,000
$7,500.00 CORRECT ANSWERS Tara Company owns 30% of Hawkins, Inc. and
applies the equity method. During the current year, Hawkins buys inventory costing
$400,000 and sells it to Tara for $500,000. At the end of the year, only 25% of this
merchandise is still being held by Tara. What amount of unrealized gain must be
deferred by Hawkins in reporting on the equity method?
$937.50
$30,000.00
$25,000.00
$7,500.00
$100,000.00
A sale from an investor to its investee CORRECT ANSWERS What is a downstream
sale?
A sale from an investor to its investee
A sale from a producer to its outside supplier
A sale from an investee to its investor
A sale from one manufacturer to another
A sale from a small company to a large one
A sale from an investee to its investor CORRECT ANSWERS What is an upstream
sale?
A sale from an investor to its investee
A sale from a producer to its outside supplier
A sale from an investee to its investor
A sale from one manufacturer to another
A sale from a small company to a large one
, $512,500 CORRECT ANSWERS TunaCo purchases 25% of Stanley, Inc. on January 1
of the current year for $500,000. This acquisition gives TunaCo the ability to apply
significant influence to Stanley's operating and financing policies and TunaCo elects to
use the equity method of accounting. Stanley reports assets on that date of $1,600,000
with liabilities of $400,000. One building with a 15-year life has a book value of
$100,000 and a fair market value of $400,000. During the current year, Stanley, Inc.
reports net income of $140,000, while paying out dividends of $70,000 for the year.
What is the Investment in Stanley account balance in TunaCo's accounting records at
the end of the current year?
$500,000
$517,500
$530,000
$460,000
$512,500
$18,400 CORRECT ANSWERS Smith Company holds 20% of the outstanding shares
of Leef Greeting Cards and applies the equity method of accounting. For the current
year, Leef reports earnings of $100,000 and pays cash dividends of $22,000. During the
current year, Leef acquired inventory for $80,000, which was then sold to Smith for
$100,000. At the end of the current year, Smith continues to hold merchandise with a
transfer price of $40,000. Assuming no amortization expense related to this investment,
what Equity in Investee Income should Smith report in the current year?
$18,400
$-0-
$12,000
$14,000
$7,600
be increased by Norbin's share of Stice's earnings and decreased by Norbin's share of
Stice's losses. CORRECT ANSWERS Norbin Company uses the equity method to
account for its investment in Stice Company's common stock. After the acquisition date,
the investment account reported on Norbin's balance sheet would
be increased by Norbin's share of Stice's earnings and decreased by Norbin's share of
Stice's losses.
