Advanced Accounting final exam with verified solutions

Advanced Accounting final exam with verified solutions An investor uses the equity method to account for an investment in common stock. After the date of acquisition, the equity investment account of the investor is: a) not affected by its share of the earnings of the investee but is decreased by its share of the losses of the investee. b) increased by its share of the earnings of the investee and is decreased by its share of the investee's losses. c) not affected by its share of the earnings or losses of the investee. d) increased by its share of the earnings of the investee but is not affected by its share of the investee's losses. - answerb) increased by its share of the earnings of the investee and is decreased by its share of the investee's losses. Angelo uses the equity method to account for its investment in Fischer on January 1. On the date of acquisition, Fischer's land and buildings were undervalued on its balance sheet. During the year following the acquisition, how do these excess of fair values over book values affect Angelo's Equity Income from Fischer? a) Building, Increase; Land, Increase b) Building, Increase; Land, No Effect c) Building, Decrease; Land, Decrease d) Building, Decrease; Land, No Effect - answerd) Building, Decrease; Land, No Effect Which of the following does not indicate an investor company's ability to significantly influence an investee? a) The investor owns 30% while another investor owns 70% b) Material inter-company transactions c) Interchange of personnel d) technological dependency - answera) The investor owns 30% while another investor owns 70% If a 30% acquisition is made at book value and the investor has a significant influence over the investee, what will be the relationship between the Equity Investment account and the investee's stockholders' equity? a) There is no particular relationship b) The Equity Investment account balance will equal 30% of investee's stockholders' equity throughout the life of the investment c) The Equity Investment account will remain at original cost even as the invetee's stockholders' equity increases d) The Equity Investment account balance will equal 30% of investee's stockholders' equity at date of acquisition, but the relationship will change as the investee reports income and dividends - answerb) The Equity Investment account balance will equal 30% of investee's stockholders' equity throughout the life of the investment On December 31, 2020, Park Inc. paid $600,000 for all of the common stock of Smith Corp. On that date, Smith had assets and liabilities with book values of $400,000 and $100,000; and fair values of $450,000 and $125,000, respectively. What amount of goodwill will be reported on the December 31, 2020 balance sheet? - answer275,000 Emily Corporation purchased all of Ace Company's common stock on January 1, 2020, for $1,000,000 cash. The investee's stockholders' equity amounted to $400,000. The excess of $600,000 was due to an unrecorded patent with a five- year life. In 2020, Ace reported net income of $250,000 and paid dividends of $25,000. For 2020, what amount of Equity Income will Emily record? - answer130,000 Emily Corporation purchased all of Ace Company's common stock on January 1, 2020, for $1,000,000 cash. The investee's stockholders' equity amounted to $400,000. The excess of $600,000 was due to an unrecorded patent with a five- year life. In 2020, Ace reported net income o