江西财经大学高级财务会计国际学院题库chapter02.docx
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江西财经大学高级财务会计国际学院题库chapter02.docx
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江西财经大学高级财务会计国际学院题库chapter02
AdvancedAccounting,11e(Beams/Anthony/Bettinghaus/Smith)
Chapter2StockInvestments—InvestorAccountingandReporting
MultipleChoiceQuestions
1)Whatmethodofaccountingwillgenerallybeusedwhenonecompanypurchaseslessthan20%oftheoutstandingstockofanothercompany?
A)Onlythefairvaluemethodmaybeused.
B)Onlytheequitymethodmaybeused.
C)Eitherthefairvaluemethodortheequitymethodmaybeused,dependingupontherelationshipbetweenthecompanies.
D)Neitherthefairvaluemethodnortheequitymethodmaybeused,regardlessofthelevelofownership.
Answer:
C
Objective:
LO1
Difficulty:
Easy
2)Whatmethodofaccountingwillgenerallybeusedwhenonecompanypurchasesbetween20%to50%oftheoutstandingstockofanothercompany?
A)Onlythefairvaluemethodmaybeused.
B)Onlytheequitymethodmaybeused.
C)Eitherthefairvaluemethodortheequitymethodmaybeused,dependingupontherelationshipbetweenthecompanies.
D)Neitherthefairvaluemethodnortheequitymethodmaybeused,regardlessofthelevelofownership.
Answer:
C
Objective:
LO1
Difficulty:
Easy
3)Whichoneofthefollowingitems,originallyrecordedintheInvestmentinFalconCo.accountundertheequitymethod,wouldnotbesystematicallyusedtoreduceinvestmentincomeonaperiodicbasis?
A)Amortizationexpenseofgoodwill
B)Depreciationexpenseontheexcessfairvalueattributedtomachinery
C)Amortizationexpenseontheexcessfairvalueattributedtoleaseagreements
D)Interestexpenseontheexcessfairvalueattributedtolong-termbondspayable
Answer:
A
Objective:
LO5
Difficulty:
Moderate
4)Whichoneofthefollowingstatementsiscorrectforaninvestorcompany?
A)ThebalanceintheInvestmentinOspreyCo.accountcanbereducedtorepresentadeclineinthefairmarketvalueoftheinvestment,butwillnotbeadjustedifthefairmarketvalueincreases.
B)Undertheequitymethod,thebalanceintheInvestmentinOspreyCo.accountcanbenegativeiftheinvesteecorporationoperatesataloss.
C)OncethebalanceintheInvestmentinOspreyCo.isreducedtozero,itwillnotbereducedanyfurther.
D)Undertheequitymethod,thebalanceintheInvestmentinOspreyCo.accountwillincreasewhencashdividendsarereceived.
Answer:
C
Objective:
LO2
Difficulty:
Moderate
5)PinkertonInc.owns10%ofSableCompany.Inthemostrecentyear,Sablehadnetearningsof$40,000andpaiddividendsof$6,000.Pinkerton'saccountantmistakenlyassumedPinkertonhadconsiderableinfluenceoverSableandusedtheequitymethodinsteadofthecostmethod.Whatistheimpactontheinvestmentaccountandnetearnings,respectively?
A)Byusingtheequitymethod,theaccountanthasunderstatedtheinvestmentaccountandoverstatedthenetearnings.
B)Byusingtheequitymethod,theaccountanthasoverstatedtheinvestmentaccountandunderstatedthenetearnings.
C)Byusingtheequitymethod,theaccountanthasunderstatedtheinvestmentaccountandunderstatedthenetearnings.
D)Byusingtheequitymethod,theaccountanthasoverstatedtheinvestmentaccountandoverstatedthenetearnings.
Answer:
D
Objective:
LO3
Difficulty:
Moderate
6)GriffonIncorporatedholdsa30%ownershipinDuckCorporation.Griffonshouldusetheequitymethodunderwhichofthefollowingcircumstances?
A)GriffonhassurrenderedsignificantstockholderrightsbyagreementbetweenGriffonandDuck.
B)GriffonhasbeenunabletosecureapositionontheDuckCorporation'sBoardofDirectors.
C)Griffonhasinadequateoruntimelyinformationtoapplytheequitymethod.
D)TheownershipofDuckCorporationisdiverse.
Answer:
D
Objective:
LO1
Difficulty:
Easy
7)PondCorporationusesthefairvaluemethodofaccountingforitsinvestmentinSwanCompany.WhichoneofthefollowingeventswouldaffecttheInvestmentinSwanCo.account?
A)Investeelosses
B)Investeedividendpayments
C)Anincreaseintheinvestee'ssharepricefromlastperiod
D)AlloftheabovewouldaffecttheInvestmentinSwanCo.account.
Answer:
C
Objective:
LO2
Difficulty:
Easy
8)SadieCorporation'sstockholders'equityatDecember31,2010includedthefollowing:
6%Preferredstock,$10parvalue$1,000,000
Commonstock,$1parvalue10,000,000
Otherpaid-incapital—common4,000,000
Retainedearnings4,000,000
$19,000,000
PilgaCorporationpurchaseda30%interestinSadie'scommonstockfromothershareholdersonJanuary1,2011for$5,800,000.WhatwasthebookvalueofPilga'sinvestmentinSadieonJanuary1,2011?
A)$5,400,000
B)$5,700,000
C)$7,120,000
D)$7,440,000
Answer:
A
Explanation:
A)Totalstockholders'equity$19,000,000
Less:
preferredequity(1,000,000)
Equals:
commonequity18,000,000
xPilga'spercentage×30%
BookvalueofPilgainvestment$5,400,000
Objective:
LO5
Difficulty:
Moderate
9)JabiruCorporationpurchaseda20%interestinFishCompanycommonstockonJanuary1,2008for$300,000.ThisinvestmentwasaccountedforusingthecompleteequitymethodandthecorrectbalanceintheInvestmentinFishaccountonDecember31,2010was$440,000.Theoriginalexcesspurchasetransactionincluded$60,000forapatentamortizedatarateof$6,000peryear.In2011,FishCorporationhadnetincomeof$4,000permonthearneduniformlythroughouttheyearandpaid$20,000ofdividendsinMay.IfJabirusoldone-halfofitsinvestmentinFishonAugust1,2011for$500,000,howmuchgainwasrecognizedonthistransaction?
A)$278,950
B)$280,000
C)$280,950
D)$282,000
Answer:
C
Explanation:
C)
Dec31,2010investmentbalance$440,000
Jabiru'sinterestinFish'sincomefromJan1-July31:
($4,000×7months×20%)=5,600
Less:
Dividends($20,000×20%)=(4,000)
Less:
Sevenmonthsofpatentamortization:
$500×7=(3,500)
InvestmentaccountbalanceatJuly31,2011$438,100
Amountreceivedfromsale:
$500,000
Bookvalueofone-halfinterest(219,050)
Gainonsale$280,950
Objective:
LO5
Difficulty:
Moderate
10)Aninvestorusesthecostmethodofaccountingforitsinvestmentincommonstock.Duringthecurrentyear,theinvestorreceived$25,000individends,anamountthatexceededtheinvestor'sshareoftheinvesteecompany'sundistributedincomesincetheinvestmentwasacquired.Theinvestorshouldreportdividendincomeofwhatamount?
A)$25,000
B)$25,000lesstheamountinexcessofitsshareofundistributedincomesincetheinvestmentwasacquired
C)$25,000lesstheamountthatisnotinexcessofitsshareofundistributedincomesincetheinvestmentwasacquired
D)Noneoftheaboveiscorrect.
Answer:
A
Objective:
LO3
Difficulty:
Easy
Usethefollowinginformationtoanswerthequestion(s)below.
OnJanuary1,2011,PansyCompanyacquireda10%interestinSunflowerCorporationfor$80,000whenSunflower'sstockholders'equityconsistedof$400,000capitalstockand$100,000retainedearnings.BookvaluesofSunflower'snetassetsequaledtheirfairvaluesonthisdate.Sunflower'snetincomeanddividendsfor2011through2013wereasfollows:
201120122013
Netincome$8,000$10,000$15,000
Dividendspaid5,0005,0005,000
11)AssumethatPansyIncorporatedusedthecostmethodofaccountingforitsinvestmentinSunflower.ThebalanceintheInvestmentinSunfloweraccountatDecember31,2013was
A)$76,700.
B)$80,000.
C)$83,300.
D)$95,000.
Answer:
B
Explanation:
B)Incomeanddividendsarenotaddedordeductedfromtheinvestmentaccountunderthecostmethodunlessliquidatingdividendsarereceived
Objective:
LO3
Difficulty:
Moderate
12)AssumethatPansyhassignificantinfluenceandusestheequitymethodofaccountingforitsinvestmentinSunflower.ThebalanceintheInvestmentinSunfloweraccountatDecember31,2013was
A)$78,200.
B)$80,000.
C)$81,800.
D)$83,300.
Answer:
C
Explanation:
C)
InitialInvestmentinSunflower$80,000
adjustments:
2011:
10%×($8,000-$5,000)=300
2012:
10%×($10,000-$5,000)=500
2013:
10%×($15,000-$5,000)=1,000
Investmentbalanceat12/31/2013:
$81,800
Objective:
LO3
Difficulty:
Moderate
13)PymingCorporationaccountsforits40%investmentinSillabogCompanyusingtheequitymethod.Onthedateoftheoriginalinvestment,fairvalueswereequaltothebookvaluesexceptforapatent,whichcostPyminganadditional$40,000.Thepatenthadanestimatedlifeof10years.Sillaboghasasteadynetincomeof$20,000peryearandconsistentlypaysout40%ofitsnetincomeasdividendstoitsshareholders.Whichoneofthefollowingstatementsiscorrect?
A)Thenetchangeintheinvestmentaccountforeachfullyearwillbeadebitof$8,000.
B)Thenetchangeintheinvestmentaccountforeachfullyearwillbeadebitof$4,800.
C)Thenetchangeintheinvestmentaccountforeachfullyearwillbeadebitof$800.
D)Thenetchangeintheinvestmentaccountforeachfullyearwillbeacreditof$800.
Answer:
C
Objective:
LO3
Difficulty:
Moderate
14)JacanaCorporationpaid$200,000fora25%interestinLilypadCorporation'scommonstockonJanuary1,2010,butwasnotabletoexercisesignificantinfluenceoverLilypad.During2011,Jacanareportedincomeof$120,000,excludingitsincomefromLilypad,andpaiddividendsof$50,000.Lilypadreportednetincomeof$40,000during2011andpaiddividendsof$20,000.Jacanashouldreportnetincomefor2011intheamountof
A)$115,000.
B)$120,000.
C)$125,000.
D)$130,000.
Answer:
C
Explanation:
C)
Jacana'sseparateincome$120,000
DividendincomefromLilypad
equals$20,000×25%=5,000
Jacana'snetincome=$125,000
Objective:
LO4
Difficulty:
Moderate
15)PandaCorporationpurchased100,000previouslyunissuedsharesofSkunkCompany's$10parvaluecommonstockdirectlyfromS
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