Test Bank For
Advanced Accounting
Authors: Joe Ben Hoyle, Thomas Schaefer,
Timothy Doupnik
12th 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.
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. A Company Should Always Use The Equity Method To Account For An Investment If:
A. It HasThe 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.
1-4
.
Advanced Accounting
Authors: Joe Ben Hoyle, Thomas Schaefer,
Timothy Doupnik
12th 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.
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. A Company Should Always Use The Equity Method To Account For An Investment If:
A. It HasThe 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.
1-4
.
