FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 14: Reporting and Interpreting Investments in Other Corporations

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

On January 1,2019,Palmer,Inc.bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000.Palmer uses the equity method of accounting for this investment.During 2019,Arnold Corporation reported $30,000 of net income and paid a total of $10,000 in cash dividends.At the end of 2019,the shares had a fair value of $150,000. -At what amount should the Arnold investment be reported at on the December 31,2019 balance sheet of Palmer,Inc.?

A) $150,000.
B) $157,000.
C) $145,000.
D) $163,000.

E) A) and B)
F) B) and C)

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements is correct with regard to investments and the statement of cash flows?

A) When the equity method is used to account for an investment in an investee company's common stock,the reported share of affiliate net income must be added to net income in the operating activities section of the statement of cash flows.
B) When the equity method is used to account for an investment in an investee company's common stock,the cash dividends received are a cash inflow from investing activities.
C) Any unrealized gains or losses that were reported on the income statement under the fair value method of accounting for investments must be removed from net income in the operating activities section of the statement of cash flows.
D) When the equity method is used to account for an investment in an investee company's common stock,the reported share of affiliate dividends must be deducted from net income in the operating activities section of the statement of cash flows.

E) B) and C)
F) A) and C)

Correct Answer

verified

Show Answer

Question 43

Essay

Review LaterAdd Note

On January 2,2019,Eagle Company acquired 100% of Solly Company's common stock for $900,000 cash in a merger transaction.At this date,the book value of all of Solly Company's assets,except a building,was $700,000.The fair value of these assets without the building was $800,000.In addition to these assets is a building that has a book value of $400,000 and a fair value of $440,000.The book value and fair value of Solly Company's liabilities is $520,000. A.Prepare a schedule to calculate the goodwill arising from the transaction. B.Prepare the journal entry to record the merger on the books of Eagle Company at the acquisition date.

If a bond is purchased at a discount,then interest revenue using the effective interest method will be less than the cash interest received.

Lyrical Company purchased debt securities for $500,000 and classified them as trading securities on September 15,2019.On December 31,2019,the current fair value of the securities was $481,000.How should the investment be reported within the 2019 financial statements?

JDR Company purchased 40% of the common stock of YRK Corporation on January 1,2019,for $2,000,000 as a long-term investment.The records of YRK Corporation showed the following on December 31,2019: At what amount should JDR report the YRK investment on the December 31,2019 balance sheet?

On July 1,2019,Surf Company purchased long-term investments in equity securities as follows: Blue Corporation common stock (par $5) 2,000 shares at $16 per share. Black Company preferred stock (par $20) 1,500 shares at $30 per share. The quoted market prices per share on December 31,2019 were as follows: Blue Corporation stock,$15 per share Black Company stock,$30 per share Each of the long-term investments represents 10% of the total shares outstanding.The combined carrying value of the long-term investments reported in the balance sheet at December 31,2019 would be which of the following?

Any unrealized gains or losses on debt trading securities would have to be added back to or subtracted from net income on the statement of cash flows under the indirect method of determining cash flows from operating activities.

Held-to-maturity bond investments must be reported on the balance sheet at fair value.

On January 1,2019,Turtle Inc.bought 30% of the outstanding shares of Shell Corporation common stock at a cost of $150,000.Turtle uses the equity method of accounting for this investment.During 2019,Shell Corporation reported $40,000 of net income and paid a total of $5,000 in cash dividends.At the end of 2019,the shares had a fair value of $160,000. -How much investment income will Turtle report for equity in investee earnings during 2019?

On March 1,2019,Young Company paid cash to purchase the following stocks as long-term investments: Old Corporation common stock (par $5),2,000 shares at $5 per share (10% of outstanding shares) ABC Corporation common stock (par $10),3,000 shares at $25 per share (15% of outstanding shares) XYZ Corporation common stock (par $10),3,000 shares at $20 per share (10% of outstanding shares) The market prices per share at December 31,end of the accounting period,were as follows: Prepare the required journal entries at the following dates: March 1,2019,December 31,2019 and December 31,2020.

On April 1,2020,Paxton Corporation acquired all of the outstanding voting common stock of Stanley Company and Stanley will remain a separate corporation.Stanley's year-end is December 31.How should the assets and liabilities of Stanley be reported on the consolidated financial statements when Stanley is combined with Paxton on April 1,2020?

During 2019,the following items were reported on The Mickey Company's statement of cash flows in millions of dollars. For each item,identify the type of activity it is (operating,investing,financing)and the effect it would have on the statement of cash flows.The operating activities section is prepared using the indirect method.Enter "+" if the item is added or "-" if the item is subtracted.Do not enter dollar amounts.

Madison Inc.acquires 100% of the voting stock of Allison Corp.for $10.0 million.Allison's total assets at fair value equaled $12.5 million and Allison had liabilities at fair value equal to $3.4 million.Madison will report goodwill of $0.9 million.

A decline in the fair value of the available-for-sale debt securities portfolio reduces assets and net income.

Discuss how the equity method of accounting for investments prevents managers of the investor corporation from manipulating income related to dividends from the investee.

An unrealized holding loss is reported on the income statement when the fair value of a debt trading security is less than its fair value reported in the prior period.

The primary difference in accounting for available-for-sale debt investments and accounting for trading debt investments is which of the following?

During 2019,Manning Corporation purchased 100% of the outstanding voting common stock shares of Brady Corporation for $4.0 million.Brady's assets had a book value of $5.0 million and fair value of $6.5 million.The book value as well as fair value of Brady's liabilities equaled $3.2 million.How much was paid for goodwill?

Photo Finish Corporation bought a 40% interest in Click-It Corporation's $1 par value voting common stock on March 31,2019.On December 31,2019,Click-It paid a $1 million cash dividend declared earlier in 2019,and reported net income for the year ended 2019 of $10 million.On December 31,2019,Click-It's stock was trading at $11.50 per share. What effect will the dividend have on the Photo Finish financial statements?