2
Advanced Accounting, exam 1 with accurate || || || || || ||
detailed solutions ||
When an investor uses the equity method to account for investments in common stock, cash
|| || || || || || || || || || || || || || ||
dividends received by the investor from the investee should be recorded as - ✔✔A deduction
|| || || || || || || || || || || || || || ||
from the investment account
|| || ||
Which of the following does not indicate an investor company's ability to significantly influence
|| || || || || || || || || || || || || ||
an investor - ✔✔The investor owns 30% of the investee but another owner holds the remaining
|| || || || || || || || || || || || || || || ||
70%
Sisk Company has owned 10% of Maust, Inc. for the past several years. This ownership did not
|| || || || || || || || || || || || || || || || ||
allow Sisk to have significant influence over Maust. Recently, Sisk acquired an additional 30% of
|| || || || || || || || || || || || || || ||
Maust and now will use the equity method. How will the investor report this change? - ✔✔A
|| || || || || || || || || || || || || || || || ||
retrospective adjustment is made to restate all prior years presented using the equity method || || || || || || || || || || || || ||
Under the fair-value option, which of the following affects the income the investor recognized
|| || || || || || || || || || || || || ||
from its ownership of the investee? - ✔✔Changes in the fair value of the investor's ownership in
|| || || || || || || || || || || || || || || || ||
shares of the investee. || || ||
When an investor elects the fair value option for a significant influence investment, cash
|| || || || || || || || || || || || || ||
dividends received by the investor from the investee should be recorded as - ✔✔Dividend income
|| || || || || || || || || || || || || ||
On January 1, Puckett Company paid $1.6 mil for 50 k shares of Harrison's voting common stock,
|| || || || || || || || || || || || || || || ||
which represents a 40% investment. No allocation to goodwill or other specific account was
|| || || || || || || || || || || || || || ||
made. Significant influence over Harrison is achieved by this acquisition and so Puckett applies
|| || || || || || || || || || || || || ||
the equity method. Harrison distributed a dividend of $2 per share during the year and reported
|| || || || || || || || || || || || || || || ||
net income of $560 k. What is the balance in the investment in Harrison account found in
|| || || || || || || || || || || || || || || || ||
Puckett's financial records as of Dec 31? - ✔✔$1,724,000 || || || || || || || ||
In Jan 2012, Wilkinson, Inc., acquired 20% of the outstanding common stock of Bremm, Inc., for
|| || || || || || || || || || || || || || || ||
$700,000. This investment gave Wilkinson the ability to exercise significant influence over
|| || || || || || || || || || || ||
, 2
Bremm. Bremm's assets on that date were recorded at $3,900,000 with liabilities of $900,000.
|| || || || || || || || || || || || || ||
Any excess of cost over book value of the investment was attributed to a patent having a
|| || || || || || || || || || || || || || || || ||
remaining useful life of 10 years. In 2012 Bremm reported net income of $170,000. In 2013,
|| || || || || || || || || || || || || || || ||
Bremm reported net income of $210,000. Dividends of $70,000 were paid in each of these two
|| || || || || || || || || || || || || || || ||
years. What is the equity method balance of Wilkinson's Investment in Bremm at Dec 31st. -
|| || || || || || || || || || || || || || || ||
✔✔$728,000
Ace purchases 40% of Baskett Co on Jan 1 for $500,000. Although Ace did not use it, this
|| || || || || || || || || || || || || || || || || ||
acquisition gave Ace the ability to apply significant influence to Baskett's operating and financing
|| || || || || || || || || || || || ||
policies. What is the investment in Baskett Co balance (equity method) in Ace's financial records
|| || || || || || || || || || || || || || || ||
as of Dec 31? - ✔✔$507,600
|| || || || ||
Goldman Co reports net income of $140,000 each year and pays an annual cash dividend of
|| || || || || || || || || || || || || || || ||
$50,000. On Dec 31, 2014, what is the investment in Goldman Company balance (equity method)
|| || || || || || || || || || || || || || ||
in Wallace's financial records? - ✔✔$708,000
|| || || || ||
Perez, Inc. applies the equity method for its 25% investment in Senior, Inc. During 2013, Perez
|| || || || || || || || || || || || || || || ||
sold goods with a 40% gross profit to Senior. Senior sold all of these goods in 2013. How should
|| || || || || || || || || || || || || || || || || || ||
Perez report the effect of the intra-entity sale on its 2013 income statement? - ✔✔No adjustment
|| || || || || || || || || || || || || || || ||
is necessary
||
Panner, Inc., owns 30% of Watkins and applies the equity method. During the current year, panner
|| || || || || || || || || || || || || || ||
buys inventory costing $54,000 and then sells it to Watkins for $90,000. At the end of the year,
|| || || || || || || || || || || || || || || || || || ||
Watkins still holds only $20,000 of merchandise. What amount of unrealized gross profit must
|| || || || || || || || || || || || || ||
Panner defer in reporting this investment using the equity method? - ✔✔$2,400
|| || || || || || || || || || ||
Alex, Inc., buys 40% of Steinbart Company on Jan 1, 2012 for $530,000. What is the equity
|| || || || || || || || || || || || || || || || ||
income in Steinbart to be reported by Alex in 2013? - ✔✔$38,020
|| || || || || || || || || || ||
Which of the following does not represent a primary motivation for business combinations? -
|| || || || || || || || || || || || || ||
✔✔Larger firms being less likely to fail || || || || || ||
Advanced Accounting, exam 1 with accurate || || || || || ||
detailed solutions ||
When an investor uses the equity method to account for investments in common stock, cash
|| || || || || || || || || || || || || || ||
dividends received by the investor from the investee should be recorded as - ✔✔A deduction
|| || || || || || || || || || || || || || ||
from the investment account
|| || ||
Which of the following does not indicate an investor company's ability to significantly influence
|| || || || || || || || || || || || || ||
an investor - ✔✔The investor owns 30% of the investee but another owner holds the remaining
|| || || || || || || || || || || || || || || ||
70%
Sisk Company has owned 10% of Maust, Inc. for the past several years. This ownership did not
|| || || || || || || || || || || || || || || || ||
allow Sisk to have significant influence over Maust. Recently, Sisk acquired an additional 30% of
|| || || || || || || || || || || || || || ||
Maust and now will use the equity method. How will the investor report this change? - ✔✔A
|| || || || || || || || || || || || || || || || ||
retrospective adjustment is made to restate all prior years presented using the equity method || || || || || || || || || || || || ||
Under the fair-value option, which of the following affects the income the investor recognized
|| || || || || || || || || || || || || ||
from its ownership of the investee? - ✔✔Changes in the fair value of the investor's ownership in
|| || || || || || || || || || || || || || || || ||
shares of the investee. || || ||
When an investor elects the fair value option for a significant influence investment, cash
|| || || || || || || || || || || || || ||
dividends received by the investor from the investee should be recorded as - ✔✔Dividend income
|| || || || || || || || || || || || || ||
On January 1, Puckett Company paid $1.6 mil for 50 k shares of Harrison's voting common stock,
|| || || || || || || || || || || || || || || ||
which represents a 40% investment. No allocation to goodwill or other specific account was
|| || || || || || || || || || || || || || ||
made. Significant influence over Harrison is achieved by this acquisition and so Puckett applies
|| || || || || || || || || || || || || ||
the equity method. Harrison distributed a dividend of $2 per share during the year and reported
|| || || || || || || || || || || || || || || ||
net income of $560 k. What is the balance in the investment in Harrison account found in
|| || || || || || || || || || || || || || || || ||
Puckett's financial records as of Dec 31? - ✔✔$1,724,000 || || || || || || || ||
In Jan 2012, Wilkinson, Inc., acquired 20% of the outstanding common stock of Bremm, Inc., for
|| || || || || || || || || || || || || || || ||
$700,000. This investment gave Wilkinson the ability to exercise significant influence over
|| || || || || || || || || || || ||
, 2
Bremm. Bremm's assets on that date were recorded at $3,900,000 with liabilities of $900,000.
|| || || || || || || || || || || || || ||
Any excess of cost over book value of the investment was attributed to a patent having a
|| || || || || || || || || || || || || || || || ||
remaining useful life of 10 years. In 2012 Bremm reported net income of $170,000. In 2013,
|| || || || || || || || || || || || || || || ||
Bremm reported net income of $210,000. Dividends of $70,000 were paid in each of these two
|| || || || || || || || || || || || || || || ||
years. What is the equity method balance of Wilkinson's Investment in Bremm at Dec 31st. -
|| || || || || || || || || || || || || || || ||
✔✔$728,000
Ace purchases 40% of Baskett Co on Jan 1 for $500,000. Although Ace did not use it, this
|| || || || || || || || || || || || || || || || || ||
acquisition gave Ace the ability to apply significant influence to Baskett's operating and financing
|| || || || || || || || || || || || ||
policies. What is the investment in Baskett Co balance (equity method) in Ace's financial records
|| || || || || || || || || || || || || || || ||
as of Dec 31? - ✔✔$507,600
|| || || || ||
Goldman Co reports net income of $140,000 each year and pays an annual cash dividend of
|| || || || || || || || || || || || || || || ||
$50,000. On Dec 31, 2014, what is the investment in Goldman Company balance (equity method)
|| || || || || || || || || || || || || || ||
in Wallace's financial records? - ✔✔$708,000
|| || || || ||
Perez, Inc. applies the equity method for its 25% investment in Senior, Inc. During 2013, Perez
|| || || || || || || || || || || || || || || ||
sold goods with a 40% gross profit to Senior. Senior sold all of these goods in 2013. How should
|| || || || || || || || || || || || || || || || || || ||
Perez report the effect of the intra-entity sale on its 2013 income statement? - ✔✔No adjustment
|| || || || || || || || || || || || || || || ||
is necessary
||
Panner, Inc., owns 30% of Watkins and applies the equity method. During the current year, panner
|| || || || || || || || || || || || || || ||
buys inventory costing $54,000 and then sells it to Watkins for $90,000. At the end of the year,
|| || || || || || || || || || || || || || || || || || ||
Watkins still holds only $20,000 of merchandise. What amount of unrealized gross profit must
|| || || || || || || || || || || || || ||
Panner defer in reporting this investment using the equity method? - ✔✔$2,400
|| || || || || || || || || || ||
Alex, Inc., buys 40% of Steinbart Company on Jan 1, 2012 for $530,000. What is the equity
|| || || || || || || || || || || || || || || || ||
income in Steinbart to be reported by Alex in 2013? - ✔✔$38,020
|| || || || || || || || || || ||
Which of the following does not represent a primary motivation for business combinations? -
|| || || || || || || || || || || || || ||
✔✔Larger firms being less likely to fail || || || || || ||
