ACCTG 473 Lecture Notes - Lecture 3: Financial Statement, Retained Earnings, Equity Method
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Can someone please help me with the following questions so I candouble check my work? No explanation needed just the answer isfine.
8. U.S. GAAP and IFRS require firms to account for minority,active investments, generally those where the investor owns between_____ using the equity method. Under the equity method, theinvestor recognizes as revenue (expense) each period its share ofthe net income (loss) of the investee. The investor recognizesdividends received from the investee as a return (reduction) ofinvestment, not as income.
a. | 10% and 50% |
b. | 20% and 50% |
c. | 30% and 50% |
d. | 40% and 60% |
e. | 50% and 60% |
25. Purchaser Corporation acquires 30%of the outstanding voting common shares of the Investee Corporationfor $600,000. Purchaser Corporation acquires the investment inInvestee Corporation by buying previously issued shares of InvesteeCorporation from other investors. When Purchaser Corporationacquired 30% of Investee Corporationâs common shares for $600,000,Investee Corporationâs total shareholdersâ equity was $1.5 million.Purchaser Corporationâs cost exceeds the carrying value of the netassets acquired by $150,000 [ $600,000 - (0.30 x$1,500,000)].
Purchaser Corporation attributes the $150,000 excess purchaseprice as follows: $100,000 to remeasure buildings and equipment tofair value and $50,000 to goodwill. Which of the following is/aretrue?
a. | Purchaser Corporation does not reclassify this excess out of itsInvestment in Stock of Investee Corporation account to Buildingsand Equipment and to Goodwill. |
b. | Purchaser Corporation must amortize (or depreciate) any amountattributed to assets with limited lives. |
c. | Purchaser Corporation must depreciate the $100,000 attributed tobuildings and equipment over their remaining useful lives. |
d. | U.S. GAAP and IFRS do not permit the investor to amortize theexcess purchase price attributed to goodwill and other assets withindefinite lives. Instead, the investor must test the investmentaccount annually for possible impairment. |
e. | all of the above |
32. Pareto Corporation owns 40% ofSpring Corporation. During Year 3, Spring has net income of$60,000. What entry should Pareto record related to its investmentin Spring during Year 3?
a. | Investment in SpringCorp. 24,000 Equity in Earnings ofAffiliate 24,000 |
b. | DividendReceivable 24,000 DividendIncome 24,000 |
c. | InvestmentReceivable 24,000 InvestmentIncome 24,000 |
d. | Investment in SpringCorp. 24,000 InvestmentIncome 24,000 |
e. | Investment in SpringCorp. 24,000 Cash 24,000 |
35. Pense Co. purchased 40% of thestock of Stretch Co. in Year 1 for $100,000. Stretch had net incomein Year 1 of $50,000 and net income in Year 2 of $30,000. Stretchalso paid total dividends of $20,000 in Year 2. On January 1, Year3, Pense Co. sold its investment in Stretch Co. to GE CapitalCorporation (GE) for $130,000. What entry would Pense Co. make torecord the sale of Stretch Co.?
a. | Cash 130,000 Gain onSale 6,000 Investment inStretch 124,000 |
b. | Cash 130,000 Loss onSale 2,000 Investment inStretch 132,000 |
c. | Cash 130,000 Loss onSale 10,000 Investment inStretch 140,000 |
d. | Cash 130,000 Loss onSale 30,000 Investment inStretch 160,000 |
e. | Cash 130,000 Loss onSale 20,000 Investment inStretch 150,000 |
55. Intercompany sales
a. | do not need to be eliminated as long as the sales have beencompleted to an outside party. |
b. | must be eliminated from both the sales and cost of goods soldaccounts. |
c. | do not need to be eliminated if made at arm's length values. |
d. | must be eliminated only if not in the ordinary course of tradeor business. |
e. | do not need to be eliminated. |
54. To avoid double counting P'sinvestment in S, P must eliminate
a. | the investment in S and S's separate company shareholders'equity. |
b. | all debt on S's separate company financial statements. |
c. | any dividends paid against the cash account. |
d. | all intercompany transactions. |
e. | all of the above. |
58. U.S. GAAP view investments of over50 percent of the voting stock of another company (for the purposeof controlling the other company at the broad policy-making leveland at the day-to-day operational level) as
a. | minority, passive investments. |
b. | minority, active investments. |
c. | majority, passive investments. |
d. | majority, active investments. |
e. | marketable securities. |
33. If Wabasso Company pays $55,000 individends to its corporate investor Lament Corporation (Lament owns35% of The Wabasso Company), what entry should Lament Corporationrecord when it receives the dividends?
a. | Cash 55,000 DividendIncome 55,000 |
b. | Cash 55,000 InvestmentIncome 55,000 |
c. | Cash 55,000 Investment in WabassoCompany 55,000 |
d. | Cash 55,000 Additional Paid-inCapital 55,000 |
e. | Cash 55,000 Common Stock- WabassoCompany 55,000 |
25. Purchaser Corporation acquires 30%of the outstanding voting common shares of the Investee Corporationfor $600,000. Purchaser Corporation acquires the investment inInvestee Corporation by buying previously issued shares of InvesteeCorporation from other investors. When Purchaser Corporationacquired 30% of Investee Corporationâs common shares for $600,000,Investee Corporationâs total shareholdersâ equity was $1.5 million.Purchaser Corporationâs cost exceeds the carrying value of the netassets acquired by $150,000 [ $600,000 - (0.30 x$1,500,000)].
Purchaser Corporation attributes the $150,000 excess purchaseprice as follows: $100,000 to remeasure buildings and equipment tofair value and $50,000 to goodwill. Which of the following is/aretrue?
a. | Purchaser Corporation does not reclassify this excess out of itsInvestment in Stock of Investee Corporation account to Buildingsand Equipment and to Goodwill. |
b. | Purchaser Corporation must amortize (or depreciate) any amountattributed to assets with limited lives. |
c. | Purchaser Corporation must depreciate the $100,000 attributed tobuildings and equipment over their remaining useful lives. |
d. | U.S. GAAP and IFRS do not permit the investor to amortize theexcess purchase price attributed to goodwill and other assets withindefinite lives. Instead, the investor must test the investmentaccount annually for possible impairment. |
e. | all of the above |
20. Pagoli Corporation acquires 30% ofthe outstanding voting common shares of the Inform Corporation for$600,000. Pagoli Corporation acquires the investment in InformCorporation by buying previously issued shares of InformCorporation from other investors.
Between the time of the acquisition and the end of PagoliCorporationâs next accounting period, Inform Corporation reportsearnings of $80,000; and pays a dividend of $30,000 to holders ofits common stock.
Inform Corporation reports earnings of $100,000 and paysdividends of $40,000 during the subsequent accounting period.
Pagoli Corporationâs Investment in Stock of Inform Corporationaccount now has a balance of:
a. | $609,000 |
b. | $621,000 |
c. | $633,000 |
d. | $642,000 |
e. | $657,000 |
Nichols Enterprises has an investment in 27,000 shares ofElliott Electronics that Nichols accounts for as a securityavailable for sale. Elliott shares are publicly traded on the NewYork Stock Exchange, and The Wall Street Journal quotes aprice for those shares of $12 a share, but Nichols believes themarket has not appreciated the full value of the Elliott shares andthat a more accurate price is $23 a share. Nichols should carry theElliott investment on its balance sheet at: |
$621,000.
$324,000.
Either $324,000 or $621,000, as either are defensiblevaluations.
$472,500, the midpoint of Nichols's range of reasonably likelyvaluations of Elliott.
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Zwick Company bought 23,500 shares of the voting common stock ofHandy Corporation in January 2016. In December, Handy announced$208,600 net income for 2016 and declared and paid a cash dividendof $8 per share on the 209,000 shares of outstanding common stock.Zwick Company's dividend revenue from Handy Corporation in December2016 would be: |
$ 0.
$23,455.
$188,000.
None of these answer choices iscorrect.
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Sox Corporation purchased a 30% interest in Hack Corporation for$1,825,000 on January 1, 2016. On November 1, 2016, Hack declaredand paid $2.3 million in dividends. On December 31, Hack reported anet loss of $4.4 million for the year. What amount of loss shouldSox report on its income statement for 2016 relative to itsinvestment in Hack? |
$1,320,000.
$1,825,000.
$1,135,000.
$690,000.
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Assume that, on January 1, 2016, Matsui Co. paid $2,688,000 forits investment in 96,000 shares of Yankee Inc. Further, assume thatYankee has 300,000 total shares of stock issued. The book value andfair value of Yankee's identifiable net assets were both $600,000at January 1, 2016. The following information pertains to Yankeeduring 2016: |
Net income | $300,000 |
Dividends declared and paid | $90,000 |
Market price of common stock on 12/31/2016 | $30/share |
What amount would Matsui report in its year-end 2016 balancesheet for its investment in Yankee? |
$3,078,000.
$2,778,000.
$2,755,200.
None of these answer choices iscorrect.
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Gerken Company concluded at the beginning of 2016 that thecompany's ownership interest in DillCo had increased to the pointthat it became appropriate to begin using the equity method toaccount for the investment. The balance in the investment accountis $75,000 at the time of the change, and accountants working withcompany records determined that the balance would have been $82,000if the account had been adjusted for investee net income anddividends as prescribed by the equity method. After implementingthe change to the equity method, if financial statements wereprepared: |
Net income will be unchanged, and retained earnings will behigher by $7,000.
Net income and retained earnings will be higher by $7,000.
Net income and retained earnings will be higher by $82,000.
The accounts will be unchanged, because no adjustment isnecessary.
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