Test Bank For
Advanced Accounting
Author: Joe Ben Hoyle
15th Edition
,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.
,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.
, 4. A Company Should Always Use The Equity Method To Account For An Investment If:
A. It Has The Ability To Exercise Significant Influence Over The Operating Policies Of The Investee.
B. It Owns 30% Of Another Company's Stock.
C. It Has A Controlling Interest (More Than 50%) Of Another Company's Stock.
D. The Investment Was Made Primarily To Earn A Return On Excess Cash.
E. It Does Not Have The Ability To Exercise Significant Influence Over The Operating Policies
Of The Investee.
5. On January 1, 2011, Dermot Company Purchased 15% Of The Voting Common Stock Of Horne
Corp. On January 1, 2013, Dermot Purchased 28% Of Horne's Voting Common Stock. If Dermot
Achieves Significant Influence With This New Investment, How Must Dermot Account For The
Change To The Equity Method?
A. It Must Use The Equity Method For 2013 But Should Make No Changes In Its Financial
Statements For 2012 And 2011.
B. It Should Prepare Consolidated Financial Statements For 2013.
C. It Must Restate The Financial Statements For 2012 And 2011 As If The Equity Method Had
Been Used For Those Two Years.
D. It Should Record A Prior Period Adjustment At The Beginning Of 2013 But Should Not
Restate The Financial Statements For 2012 And 2011.
E. It Must Restate The Financial Statements For 2012 As If The Equity Method Had Been Used Then.
Advanced Accounting
Author: Joe Ben Hoyle
15th Edition
,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.
,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.
, 4. A Company Should Always Use The Equity Method To Account For An Investment If:
A. It Has The Ability To Exercise Significant Influence Over The Operating Policies Of The Investee.
B. It Owns 30% Of Another Company's Stock.
C. It Has A Controlling Interest (More Than 50%) Of Another Company's Stock.
D. The Investment Was Made Primarily To Earn A Return On Excess Cash.
E. It Does Not Have The Ability To Exercise Significant Influence Over The Operating Policies
Of The Investee.
5. On January 1, 2011, Dermot Company Purchased 15% Of The Voting Common Stock Of Horne
Corp. On January 1, 2013, Dermot Purchased 28% Of Horne's Voting Common Stock. If Dermot
Achieves Significant Influence With This New Investment, How Must Dermot Account For The
Change To The Equity Method?
A. It Must Use The Equity Method For 2013 But Should Make No Changes In Its Financial
Statements For 2012 And 2011.
B. It Should Prepare Consolidated Financial Statements For 2013.
C. It Must Restate The Financial Statements For 2012 And 2011 As If The Equity Method Had
Been Used For Those Two Years.
D. It Should Record A Prior Period Adjustment At The Beginning Of 2013 But Should Not
Restate The Financial Statements For 2012 And 2011.
E. It Must Restate The Financial Statements For 2012 As If The Equity Method Had Been Used Then.
