Exam 13: Measuring and Evaluating Financial Performance

The equity method requires the recognition of investment revenue for dividends received.

Gilman Company purchased 100,000 of the 250,000 shares of common stock of Burke Corporation on January 1, 20X0, at $40 per share as a long-term investment. The records of Burke Corporation showed the following on December 31, 20X0: Net income \ 575,000 Dividends declared and paid during December 20X0 \ 30,000 Market price per share \ 42.00 -How much should Gilman Company report as investment income from the Burke investment during 20X0?

Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock which constitutes 10% of Martin's voting stock on June 30, 20X0 for $42 per share. Phillips' intent is to keep these shares beyond the current year. On December 20, 20X0, Martin paid a $4,000,000 cash dividend. On December 31, Martin's stock was trading at $45 per share and their reported 20X0 net income was $52 million. What method of accounting will Phillips use to account for this investment?

Which of the following statements is correct?

Tansent Finance Ltd. acquired 30% of Morton Corp.'s common shares on January 1, 20X1 for $240,000. During 20X1, Morton earned $100,000 and paid dividends of $60,000. Tansent's 30% interest in Morton gives Tansent the ability to exercise significant influence over Morton 's operating and financial policies. During 20X2, Morton earned $120,000 and declared dividends of $40,000 on April 1 and $40,000 on October 1. On July 1, 20X2, Tansent sold half of its shares in Morton for $158,000 cash. -What should be the gain on sale of this investment in Tansent's 20X2 statement of earnings?

Complete the following matrix by writing a brief explanation in each cell to indicate the appropriate approach for long-term investments. Measurement and Reporting Outstanding Common Stock Level of Ownership: Method Owned (\%) Degrees of Influence or Contrl A Market value B Equity C Consolidated statements

JDR Company purchased 40% of the common stock of YRK Corporation on January 1, 20X0, for $2,000,000 as a long-term investment. The records of YRK Corporation showed the following on December 31, 20X0: 20X0 net income \ 290,000 Dividends declared and paid during December, 20X0 \ 20,000 How much investment income should JDR report from the YRK investment during 20X0?

On July 1, 20X0, as a long-term investment in available-for-sale securities, Wildlife Supply Company purchased 6,000 shares of the preferred stock (non-voting) of Nature Company for $30 per share (18,000 shares outstanding). The records of Nature Company reflect the following: 20X0 net income \ 60,000 Dividends declared and paid during December, 20X0 \ 6,500 December 31, 20X0 market price per share \ 27.00 The amount reported on the statement of financial position by Wildlife Company for its investment at December 31, 20X0 would be which of the following?

On January 1, 20X4, Shelley Company paid $650,000 cash for 100% of the outstanding common stock of SCD Company; SCD's stockholders equity on the date of acquisition was $500,000. The current market value of SCD's plant and equipment was $100,000 in excess of the equipment's book value. If the market value and book value are the same for SCD's remaining assets, what was the amount of goodwill purchased by Shelley Company?

McGinn Company purchased 10% of RJ Company's common stock during 20X2 for $100,000. The 10% investment in RJ had a $90,000 fair value at the end of 20X2 and a $105,000 fair value at the end of 20X3. -Which of the following statements is correct if McGinn classified the investment as a trading security and sold it at the beginning of 20X4 for $102,000?

McGinn Company purchased 10% of RJ Company's common stock during 20X2 for $100,000. The 10% investment in RJ had a $90,000 fair value at the end of 20X2 and a $105,000 fair value at the end of 20X3. - Which of the following statements is correct if McGinn classified the investment as an available-for-sale security and sold it at the beginning of 20X4 for $102,000?

Investments classified other than as held-to-maturity bond investments should be reported on the statement of financial position at fair value.

Which of the following is the best description of investments in available-for-sale securities?

Miller Corp. purchased $1,000,000 of bonds at 105. The bonds pay interest at the rate of 10%. Miller intends to hold these bonds to maturity. Which of the following statements is false?

An unrealized holding gain is reported on the income statement when the fair value of an available- for-sale security exceeds its cost.

Which of the following is the best description of investments in trading securities?

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

From RBB's perspective, this is an example of

The balance sheet of Mini Company was as follows immediately before it was acquired by Maxi Company: Mini Company Statement of Financial P osition January 1, 20X0 Cash \ 90,000 Accounts receivable (net) 50,000 Inventory 150,000 Plant and equipment (net) 100,000 Total assets \ 390,000 Accounts payable \ 40,000 Notes payable 80,000 Common stock 155,000 Retained earnings Total Liabilities and Stockholders' Equity \ 390,000 On January 1, 20X0, Maxi Company paid $350,000 in cash for 100% of the outstanding common stock of Mini Company. The current market value of Mini Company's plant and equipment was $140,000 on the date of acquisition. If the market value and book value are the same for Mini's remaining assets, what is the net increase in Maxi's assets as a result of the merger with Mini?

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