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Exam 14: Reporting and Interpreting Investments in Other Corporations

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Question 61

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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. -What investment balance will be reported on Turtle's December 31,2019 balance sheet?

A) $150,000.
B) $162,000.
C) $160,500.
D) $170,500.

E) B) and C)
F) All of the above

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Question 62

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As a long-term investment,Martha Company purchased 5,000 of the 12,500 outstanding voting shares of Stewart Corporation at $20 per share on January 1,2019.At the end of 2019,Stewart reported net income of $100,000 and declared and paid dividends of $10,000.The market price of the Stewart stock at the end of 2019 was $23 per share. Calculate the net balance in Martha's investment account at the end of 2019.

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5,000/12,500 = 40% o...

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Question 63

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On January 1,2019,Calas Company acquired 40% of the outstanding voting common stock of Nick Company as a long-term investment.During 2019,Nick reported net income of $10,000 and declared and paid dividends of $4,000.During 2019,Calas Company should report equity in investee earnings of:

Fun with Florals Corporation acquired all the voting common stock shares of Crafts-to-Go Corporation under the acquisition method.Crafts-to-Go remains a separate corporation.Which of the following statements about the financial statements is true?

On January 1,2019,Entertainment Company acquired 15% (80,000 shares) of the outstanding voting stock of Rocker Company as a long-term investment for $1,784,000.During 2019,Rocker Company reported net income of $1,500,000 and dividends were declared and paid in the amount of $250,000.How much income will be reported during 2019 from the Rocker investment if the year-end price of the shares is $22.30 per share?

Rye Company purchased 15% of Lena Company's common stock during 2019 for $150,000.The Investment in Lena had a $160,000 fair value at the end of 2019 and a $140,000 fair value at the end of 2020. - Which of the following statements is incorrect?

Rye Company purchased 25% of Lena Company's common stock during 2019 for $150,000.The Investment in Lena had a $160,000 fair value at the end of 2019 and a $140,000 fair value at the end of 2020. -Lena Company reported net income of $60,000 in 2019 and $72,000 in 2020 and declared and paid dividends of $30,000 each year.On Rye Company's balance sheet at December 31,2020,what amount was reported for the investment in Lena Company?

When a trading security is sold,three journal entries are required: one to adjust the security to fair value,another to record the sale,and a third to adjust retained earnings.

Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation,and Heartfelt accounts for the investment using the equity method.During 2019,Candle Corporation reported net income of $100,000 and declared and paid cash dividends of $10,000.The carrying value of the Candle investment was $500,000 on January 1,2019. - How much investment income should Heartfelt report during 2019 from the Candle investment?

An unrealized holding gain is reported within other comprehensive income when the fair value of a trading debt security exceeds its fair value reported in the prior period.

Photo Finish Corporation bought a 40% interest in Click-It Corporation's $1 par value voting common stock on March 31,2019.On that date,Photo Finish paid $20 million for the 2 million shares at a $10 market price per share.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. At what amount will the Click-It investment be reported on Photo Finish's December 31,2019 balance sheet?

The balance sheet of Mini Company was as follows immediately before it was acquired by Maxi Company: - If the fair value and book value are the same for Mini's remaining assets and liabilities,what is the net increase in Maxi's assets only,after paying the cash for Mini?

The equity method is required to be used when an investor has the ability to exert significant influence over the affiliate.