Exam 7: Investments and the Time Value of Money

Non-controlling interest occurs when a company owns only 90% of a company they control.

On January 1,2016,TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000.Net income reported by Alberta Power Pool Corporation for 2016 and 2017 was,respectively,$100,000 and $125,000.Dividends paid by Alberta Power Pool Corporation during 2016 and 2017 were,respectively,$60,000 and $75,000.Assume on December 31,2017,TXU Europe Corporation sells 50% of its investment in Alberta Power Pool Corporation for $525,000.TXU Europe Corporation will report a:

If a company owns 49% of the stock of another business,cash dividends received from the investee company are generally recorded by decreasing the value of the Investment account.

If a company owns between 20 and 50% of the voting share of an investee it must normally use the equity method to account for its investment.

When a parent-subsidiary relationship exists between two companies:

Cooper Company has purchased equipment that requires annual payments of $18,000 to be paid at the end of each of the next 6 years.The discount rate is 8%.The present value of $1 for six periods at 8% is 0.630.The present value of an ordinary annuity of $1 for six periods at 8% is 4.623.What amount will be assigned to the equipment? (Round your final answer to the nearest dollar.)

The adjusting entry for investments at fair value through other comprehensive income contains a credit to Investments for $651.The income statement will reflect:

How does an investor account for a long-term investment in bonds?

Amortizing a premium on a bond investment will cause the Investment account and interest revenue to respectively:

If an investor company owns between 20% and 50% of the common shares of another business,cash dividends received from the investee company are generally recorded by the investor company by:

An investor owns 40% of the voting common shares in an investee and has the ability to exercise significant influence over the investee.How should the investor account for the investment?

An investor company with a 40% interest in an investee properly used the equity method to account for the investment.If the entries to the Investment account for the current year showed a debit of $45,000 and a credit of $22,000,the investee must have paid total dividends of:

With an investment in a subsidiary,under Accounting Standards for Private Enterprise,the investment can be accounted for using consolidation,or the equity or cost method.

Prepare journal entries for the following transactions.Note that each item falls under the at fair value through other comprehensive income classification. (Yellow-Snow Corporation had no prior investments to the investment in Dog-Dish Corporation)

Barking Power Company accounts for its 35% investment in Pipeline Corporation under the equity method of accounting.The investment was made on January 1,2017,at a cost of $625,000.Pipeline Corporation reported net income of $85,000 for the year ended December 31,2017,and paid total dividends of $20,000 during 2017.On December 31,2017,after making all appropriate entries,the balance in Barking Power Company's Long-Term Investment account will equal:

The amortization of a discount on a long-term bond investment:

When the equity method is used to account for a stock investment,dividends received are recorded as a reduction to the Investment account and the investor's share of income reported by the investee is treated as an increase in the Investment account.Explain why the investment is accounted for in this fashion.

From the buyer's perspective,a discount on a long-term investment in bonds means additional interest revenue while a premium means less interest revenue.

Amortization of a discount or premium on the bond affects all of the following except:

When a parent acquires 100% of the voting stock of a subsidiary,that subsidiary: