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Chapter 2 - Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 2-1
Chapter 2 Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential
Multiple Choice Questions
- If Push Company owned 51 percent of the outstanding common stock of Shove Company,
- Cost method
- Consolidation
- Equity method
- Merger method
which reporting method would be appropriate?
Answer: B
Learning Objective: 02-01
Topic: Accounting for Investments in Common Stock
Blooms: Remember
AACSB: Reflective Thinking
AICPA: FN Reporting
Difficulty: 1 Easy
- Usually, an investment of 20 to 50 percent in another company's voting stock is reported under
the:
- Cost method
- Equity method
- Full consolidation method
- Fair value method
Answer: B
Learning Objective: 02-01
Topic: Accounting for Investments in Common Stock
Blooms: Remember
AACSB: Reflective Thinking
AICPA: FN Reporting
Difficulty: 1 Easy
Advanced Financial Accounting 11th Edition Christensen Test Bank Visit TestBankDeal.com to get complete for all chapters
Chapter 2 - Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 2-2
- From an investor's point of view, a liquidating dividend from an investee is:
- A dividend declared by the investee in excess of its earnings in the current year.
- A dividend declared by the investee in excess of its earnings since acquisition by the investor.
- Any dividend declared by the investee since acquisition.
- A dividend declared by the investee in excess of the investee's retained earnings.
Answer: B
Learning Objective: 02-02
Topic: The Cost Method
Blooms: Remember
AACSB: Reflective Thinking
AICPA: FN Decision Making
Difficulty: 1 Easy
- Which of the following observations is NOT consistent with the cost method of accounting?
- Investee dividends from earnings since acquisition by investor are treated as a reduction of the
- Investments are carried by the investor at historical cost.
- No journal entry is made regarding the earnings of the investee.
- It is consistent with the treatment normally accorded noncurrent assets.
investment.
Answer: A
Learning Objective: 02-02
Topic: The Cost Method
Blooms: Remember
AACSB: Reflective Thinking
AICPA: FN Decision Making
Difficulty: 1 Easy
Chapter 2 - Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 2-3
- On January 1, 20X9 Athlon Company acquired 30 percent of the common stock of Opteron
- $0
Corporation, at underlying book value. For the same year, Opteron reported net income of $55,000, which includes an extraordinary gain of 40,000. It did not pay any dividends during the year. By what amount would Athlon's investment in Opteron Corporation increase for the year, if Athlon used the equity method?
B. $16,500
C. $4,500
D. $12,000
Answer: B
Learning Objective: 02-03
Learning Objective: Appendix 2A
Topic: The Equity Method
Topic: Investor’s Share of Other Comprehensive Income
Blooms: Understand
AACSB: Analytic
AICPA: FN Measurement
Difficulty: 2 Medium
The following data applies to Questions 6 - 8:
On January 1, 20X8, William Company acquired 30 percent of eGate Company's common stock, at underlying book value of $100,000. eGate has 100,000 shares of $2 par value, 5 percent cumulative preferred stock outstanding. No dividends are in arrears. eGate reported net income of $150,000 for 20X8 and paid total dividends of $72,000. William uses the equity method to account for this investment.
- Based on the preceding information, what amount would William Company receive as
dividends from eGate for the year?
A. $62,000
B. $21,600
C. $18,600
D. $54,000
Answer: C
Learning Objective: 02-03
Learning Objective: Appendix 2A
Topic: The Equity Method
Topic: Additional Requirements of ASC 323-10
Blooms: Apply
AACSB: Analytic
AICPA: FN Measurement
Difficulty: 3 Hard
Chapter 2 - Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 2-4
- Based on the preceding information, what amount of investment income will William
Company report from its investment in eGate for the year?
A. $45,000
B. $42,000
C. $62,000
D. $35,000
Answer: B
Learning Objective: 02-03
Learning Objective: Appendix 2A
Topic: The Equity Method
Topic: Additional Requirements of ASC 323-10
Blooms: Apply
AACSB: Analytic
AICPA: FN Measurement
Difficulty: 3 Hard
- Based on the preceding information, what amount would be reported by William Company as
the balance in its investment account on December 31, 20X8?
A. $100,000
B. $123,400
C. $120,400
D. $142,000
Answer: B
Learning Objective: 02-03
Learning Objective: Appendix 2A
Topic: The Equity Method
Topic: Additional Requirements of ASC 323-10
Blooms: Apply
AACSB: Analytic
AICPA: FN Measurement
Difficulty: 3 Hard
The following data applies to Questions 9 – 11:
On January 1, 20X4, Timber Company acquired 25% of Johnson Company’s common stock at underlying book value of $200,000. Johnson has 80,000 shares of $10 par value, 6 percent cumulative preferred stock outstanding. No dividends are in arrears. Johnson reported net income of $270,000 for 20X4 and paid total dividends of $140,000. Timber uses the equity method to account for this investment.
- Based on the preceding information, what amount would Timber Company receive as
dividends from Johnson for the year?
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