Test Bank for Advanced
Accounting 12th Edition by
Joe Ben Hoyle, Thomas
Schaefer, Timothy Doupnik
et al: A Complete Solution
2023
,Chapter 01; The Equity Method of Accounting for Investments
Multiple Choice Questions
1. Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value
method to account for this investment. Trace reported net income of $110,000 for 2013 and paid
dividends of $60,000 on October 1, 2013. How much income should Gaw recognize on this
investment in 2013?
A. $16,500.
B. $9,000.
C. $25,500.
D. $7,500.
E. $50,000.
1-2
.
,2. Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to
account for the investment. During 2013, Dew reported income of $250,000 and paid dividends of
$80,000. There is no amortization associated with the investment. During 2013, how much income
should Yaro recognize related to this investment?
A. $24,000.
B. $75,000.
C. $99,000.
D. $51,000.
E. $80,000.
3. On January 1, 2013, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.'s voting
common stock which represents a 45% investment. No allocation to goodwill or other specific
account was made. Significant influence over Lennon was achieved by this acquisition. Lennon
distributed a dividend of $2.50 per share during 2013 and reported net income of $670,000. What
was the balance in the Investment in Lennon Co. account found in the financial records of Pacer
as of December 31, 2013?
A. $2,040,500.
B. $2,212,500.
C. $2,260,500.
D. $2,171,500.
E. $2,071,500.
1-3
.
, 4. As3companys3shoulds3alwayss3uses3thes3equitys3methods3tos3accounts3fors3ans3investments3if:
A. Its3hass3thes3abilitys3tos3exercises3significants3influences3overs3thes3operatings3policiess3ofs3thes3inves
tee.
B. Its3ownss330%s3ofs3anothers3company'ss3stock.
C. Its3hass3as3controllings3interests3(mores3thans350%)s3ofs3anothers3company'ss3stock.
D. Thes3investments3wass3mades3primarilys3tos3earns3as3returns3ons3excesss3cash.
E. Its3doess3nots3haves3thes3abilitys3tos3exercises3significants3influences3overs3thes3operatin
gs3policiess3ofs3thes3investee.
5. Ons3Januarys31,s32011,s3Dermots3Companys3purchaseds315%s3ofs3thes3votings3commons3st
ocks3ofs3Hornes3Corp.s3Ons3Januarys31,s32013,s3Dermots3purchaseds328%s3ofs3Horne'ss3vo
tings3commons3stock.s3Ifs3Dermots3achievess3significants3influences3withs3thiss3news3investm
ent,s3hows3musts3Dermots3accounts3fors3thes3changes3tos3thes3equitys3method?
A. Its3musts3uses3thes3equitys3methods3fors32013s3buts3shoulds3makes3nos3changess3ins3itss3
financials3statementss3fors32012s3ands32011.
B. Its3shoulds3prepares3consolidateds3financials3statementss3fors32013.
C. Its3musts3restates3thes3financials3statementss3fors32012s3ands32011s3ass3ifs3thes3equitys
3methods3hads3beens3useds3fors3thoses3twos3years.
D. Its3shoulds3records3as3priors3periods3adjustments3ats3thes3beginnings3ofs32013s3buts3sho
ulds3nots3restates3thes3financials3statementss3fors32012s3ands32011.
E. Its3musts3restates3thes3financials3statementss3fors32012s3ass3ifs3thes3equitys3methods3hads3beens3us
eds3then.
1-4
.
Accounting 12th Edition by
Joe Ben Hoyle, Thomas
Schaefer, Timothy Doupnik
et al: A Complete Solution
2023
,Chapter 01; The Equity Method of Accounting for Investments
Multiple Choice Questions
1. Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value
method to account for this investment. Trace reported net income of $110,000 for 2013 and paid
dividends of $60,000 on October 1, 2013. How much income should Gaw recognize on this
investment in 2013?
A. $16,500.
B. $9,000.
C. $25,500.
D. $7,500.
E. $50,000.
1-2
.
,2. Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to
account for the investment. During 2013, Dew reported income of $250,000 and paid dividends of
$80,000. There is no amortization associated with the investment. During 2013, how much income
should Yaro recognize related to this investment?
A. $24,000.
B. $75,000.
C. $99,000.
D. $51,000.
E. $80,000.
3. On January 1, 2013, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.'s voting
common stock which represents a 45% investment. No allocation to goodwill or other specific
account was made. Significant influence over Lennon was achieved by this acquisition. Lennon
distributed a dividend of $2.50 per share during 2013 and reported net income of $670,000. What
was the balance in the Investment in Lennon Co. account found in the financial records of Pacer
as of December 31, 2013?
A. $2,040,500.
B. $2,212,500.
C. $2,260,500.
D. $2,171,500.
E. $2,071,500.
1-3
.
, 4. As3companys3shoulds3alwayss3uses3thes3equitys3methods3tos3accounts3fors3ans3investments3if:
A. Its3hass3thes3abilitys3tos3exercises3significants3influences3overs3thes3operatings3policiess3ofs3thes3inves
tee.
B. Its3ownss330%s3ofs3anothers3company'ss3stock.
C. Its3hass3as3controllings3interests3(mores3thans350%)s3ofs3anothers3company'ss3stock.
D. Thes3investments3wass3mades3primarilys3tos3earns3as3returns3ons3excesss3cash.
E. Its3doess3nots3haves3thes3abilitys3tos3exercises3significants3influences3overs3thes3operatin
gs3policiess3ofs3thes3investee.
5. Ons3Januarys31,s32011,s3Dermots3Companys3purchaseds315%s3ofs3thes3votings3commons3st
ocks3ofs3Hornes3Corp.s3Ons3Januarys31,s32013,s3Dermots3purchaseds328%s3ofs3Horne'ss3vo
tings3commons3stock.s3Ifs3Dermots3achievess3significants3influences3withs3thiss3news3investm
ent,s3hows3musts3Dermots3accounts3fors3thes3changes3tos3thes3equitys3method?
A. Its3musts3uses3thes3equitys3methods3fors32013s3buts3shoulds3makes3nos3changess3ins3itss3
financials3statementss3fors32012s3ands32011.
B. Its3shoulds3prepares3consolidateds3financials3statementss3fors32013.
C. Its3musts3restates3thes3financials3statementss3fors32012s3ands32011s3ass3ifs3thes3equitys
3methods3hads3beens3useds3fors3thoses3twos3years.
D. Its3shoulds3records3as3priors3periods3adjustments3ats3thes3beginnings3ofs32013s3buts3sho
ulds3nots3restates3thes3financials3statementss3fors32012s3ands32011.
E. Its3musts3restates3thes3financials3statementss3fors32012s3ass3ifs3thes3equitys3methods3hads3beens3us
eds3then.
1-4
.
