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CHAPTER 1
SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS
MULTIPLE CHOICE QUESTIONS
1. c
$180,000 - $160,000 = $20,000
$125,000 - $100,000 = 25,000
Total gain $45,000
2. a
$29,000 – $26,000 = $3,000
3. a
$207,544 – [(6% x $200,000) – (4% x $207,544)] = $203,846
4. d
Reclassification of unrealized loss on AFS securities sold $1,000 credit
Unrealized gain on AFS securities held at year-end 6,000 credit (1)
Total amount reported in OCI $7,000 credit
(1) $81,000 – ($100,000 – $25,000) = $6,000 unrealized gain
5. d
$5,000,000 + [40% x ($600,000 – $200,000)] = $5,160,000
6. b
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7. b
Reported net income; 35% x $7,000,000 = $ 2,450,000
Less unconfirmed profit on ending inventory
35% x [$6,000,000 – ($6,000,000/1.25)] = (420,000)
Equity in net income $ 2,030,000
Less dividends; 35% x $2,000,000 (700,000)
Plus beginning investment balance 50,000,000
Ending investment balance $51,330,000
8. d
Fizzy’s entry to record the acquisition is:
Current assets 25,000
Property 2,500,000
Goodwill 25,475,000
Liabilities 3,000,000
Cash 25,000,000
9. b
10. a
11. b
The entry to record the sale is:
Cash 410,000
Loss on sale of AFS securities 15,000
Investment in AFS securities 400,000
Other comprehensive income 25,000
The reclassification of the loss increases OCI, and the loss reported in income is the
difference between the original cost ($400,000 + $25,000) and sales proceeds ($410,000).
12. b
$285,000 - $300,000 = $15,000 loss
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13. d
Investment balance at the beginning of 2023 is $203,883 (=$205,768 – ($6,000 – (2% x
$205,768)); 2% x $203,883 = $4,078
14. c
Investment balance at the end of 2022 is $203,827 (=$205,657 – ($8,000 – (3% x
$205,657)); $190,000 - $203,827 = $13,827 loss
15. c
$510,000 - $500,000 = $10,000; unrealized gains are reported in income.
16. b
The basis difference is $180,000 (=$3,000,000 – (30% x $9,400,000))
(30% x $100,000) – $180,000/10 = $12,000
17. d
Investment balance, beginning of 2020 $10,000,000
($2,400,000 - $2,000,000) x 40% = 160,000
($150,000 - $200,000) x 40% = (20,000)
($60,000 + $10,000 - $25,000) x 40% = 18,000
Investment balance, end of 2025 $10,158,000
18. b
$10,000,000 – ($400,000 + $5,000,000 - $6,000,000) = $10,600,000
19. c
$25,000,000 – ($500,000 + $8,000,000 + $1,000,000 - $6,000,000) = $21,500,000
20. c
,wisedoc ytrewtrew
CHAPTER 1
SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS
MULTIPLE CHOICE QUESTIONS
1. c
$180,000 - $160,000 = $20,000
$125,000 - $100,000 = 25,000
Total gain $45,000
2. a
$29,000 – $26,000 = $3,000
3. a
$207,544 – [(6% x $200,000) – (4% x $207,544)] = $203,846
4. d
Reclassification of unrealized loss on AFS securities sold $1,000 credit
Unrealized gain on AFS securities held at year-end 6,000 credit (1)
Total amount reported in OCI $7,000 credit
(1) $81,000 – ($100,000 – $25,000) = $6,000 unrealized gain
5. d
$5,000,000 + [40% x ($600,000 – $200,000)] = $5,160,000
6. b
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7. b
Reported net income; 35% x $7,000,000 = $ 2,450,000
Less unconfirmed profit on ending inventory
35% x [$6,000,000 – ($6,000,000/1.25)] = (420,000)
Equity in net income $ 2,030,000
Less dividends; 35% x $2,000,000 (700,000)
Plus beginning investment balance 50,000,000
Ending investment balance $51,330,000
8. d
Fizzy’s entry to record the acquisition is:
Current assets 25,000
Property 2,500,000
Goodwill 25,475,000
Liabilities 3,000,000
Cash 25,000,000
9. b
10. a
11. b
The entry to record the sale is:
Cash 410,000
Loss on sale of AFS securities 15,000
Investment in AFS securities 400,000
Other comprehensive income 25,000
The reclassification of the loss increases OCI, and the loss reported in income is the
difference between the original cost ($400,000 + $25,000) and sales proceeds ($410,000).
12. b
$285,000 - $300,000 = $15,000 loss
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13. d
Investment balance at the beginning of 2023 is $203,883 (=$205,768 – ($6,000 – (2% x
$205,768)); 2% x $203,883 = $4,078
14. c
Investment balance at the end of 2022 is $203,827 (=$205,657 – ($8,000 – (3% x
$205,657)); $190,000 - $203,827 = $13,827 loss
15. c
$510,000 - $500,000 = $10,000; unrealized gains are reported in income.
16. b
The basis difference is $180,000 (=$3,000,000 – (30% x $9,400,000))
(30% x $100,000) – $180,000/10 = $12,000
17. d
Investment balance, beginning of 2020 $10,000,000
($2,400,000 - $2,000,000) x 40% = 160,000
($150,000 - $200,000) x 40% = (20,000)
($60,000 + $10,000 - $25,000) x 40% = 18,000
Investment balance, end of 2025 $10,158,000
18. b
$10,000,000 – ($400,000 + $5,000,000 - $6,000,000) = $10,600,000
19. c
$25,000,000 – ($500,000 + $8,000,000 + $1,000,000 - $6,000,000) = $21,500,000
20. c
