Exam 2: Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries With No Differential

Usually, an investment of 20 to 50 percent in another company's voting stock is reported under the:

On January 1, 20X7, Yang Corporation acquired 25 percent of the outstanding shares of Spiel Corporation for $100,000 cash. Spiel Company reported net income of $75,000 and paid dividends of $30,000 for both 20X7 and 20X8. The fair value of shares held by Yang was $110,000 and $105,000 on December 31, 20X7 and 20X8 respectively. -Based on the preceding information, what amount will be reported by Yang as income from its investment in Spiel for 20X7, if it used the fair value method of accounting?

On January 1, 20X4, Plimsol Company acquired 100 percent of Shipping Corporation's voting shares, at underlying book value. Plimsol uses the cost method in accounting for its investment in Shipping. Shipping's retained earnings was $75,000 on the date of acquisition. On December 31, 20X4, the trial balance data for the two companies are as follows: -Based on the information provided, what amount of net income will be reported in the consolidated financial statements prepared on December 31, 20X4?

Beta Company acquired 100 percent of the voting common shares of Standard Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of $150,000. Immediately prior to the acquisition, Beta reported total assets of $500,000, liabilities of $280,000, and stockholders' equity of $220,000. At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders' equity of $150,000. Included in Standard's liabilities was an account payable to Beta in the amount of $20,000, which Beta included in its accounts receivable. -Based on the preceding information, what amount of stockholders' equity was reported in the consolidated balance sheet immediately after acquisition?

From an investor's point of view, a liquidating dividend from an investee is:

On January 1, 20X7, Yang Corporation acquired 25 percent of the outstanding shares of Spiel Corporation for $100,000 cash. Spiel Company reported net income of $75,000 and paid dividends of $30,000 for both 20X7 and 20X8. The fair value of shares held by Yang was $110,000 and $105,000 on December 31, 20X7 and 20X8 respectively. -Based on the preceding information, what amount will be reported by Yang as balance in investment in Spiel on December 31, 20X8, if it used the equity method of accounting?

The consolidation process consists of all the following except:

Beta Company acquired 100 percent of the voting common shares of Standard Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of $150,000. Immediately prior to the acquisition, Beta reported total assets of $500,000, liabilities of $280,000, and stockholders' equity of $220,000. At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders' equity of $150,000. Included in Standard's liabilities was an account payable to Beta in the amount of $20,000, which Beta included in its accounts receivable. -Based on the preceding information, what amount of total assets did Beta report in its balance sheet immediately after the acquisition?

Parent Company purchased 100% of Son Inc. on January 1, 20X2 for $420,000. Son reported earnings of $82,000 and declared dividends of $4,000 during 20X2. -Based on the preceding information and assuming Parent uses the cost method to account for its investment in Son, what is the balance in Parent's Investment in Son account on December 31, 20X2, prior to consolidation?

On January 1, 20X9 Athlon Company acquired 30 percent of the common stock of Opteron Corporation, at underlying book value. For the same year, Opteron reported net income of $55,000, which includes an extraordinary gain of 40,000. It did not pay any dividends during the year. By what amount would Athlon's investment in Opteron Corporation increase for the year, if Athlon used the equity method?

On January 1, 20X8, William Company acquired 30 percent of eGate Company's common stock, at underlying book value of $100,000. eGate has 100,000 shares of $2 par value, 5 percent cumulative preferred stock outstanding. No dividends are in arrears. eGate reported net income of $150,000 for 20X8 and paid total dividends of $72,000. William uses the equity method to account for this investment. -Based on the preceding information, what amount of investment income will William Company report from its investment in eGate for the year?

Which of the following observations is NOT consistent with the cost method of accounting?

Under the cost method of accounting for a stock investment, the differential:

Parent Company purchased 100% of Son Inc. on January 1, 20X2 for $420,000. Son reported earnings of $82,000 and declared dividends of $4,000 during 20X2. -Based on the preceding information and assuming Parent uses the equity method to account for its investment in Son, what is the balance in Parent's Investment in Son account on December 31, 20X2, prior to consolidation?

On January 1, 20X4, Plimsol Company acquired 100 percent of Shipping Corporation's voting shares, at underlying book value. Plimsol uses the cost method in accounting for its investment in Shipping. Shipping's retained earnings was $75,000 on the date of acquisition. On December 31, 20X4, the trial balance data for the two companies are as follows: -Based on the information provided, what amount of total assets will be reported in the consolidated balance sheet prepared on December 31, 20X4?

A cash dividend returns assets to the stockholders while reducing corporate liquidity. Why are not all cash dividends considered to be "liquidating dividends"? In your response include a discussion of how an investor accounts for a liquidating dividend.

On January 1, 20X8, William Company acquired 30 percent of eGate Company's common stock, at underlying book value of $100,000. eGate has 100,000 shares of $2 par value, 5 percent cumulative preferred stock outstanding. No dividends are in arrears. eGate reported net income of $150,000 for 20X8 and paid total dividends of $72,000. William uses the equity method to account for this investment. -Based on the preceding information, what amount would be reported by William Company as the balance in its investment account on December 31, 20X8?

On January 1, 20X7, Yang Corporation acquired 25 percent of the outstanding shares of Spiel Corporation for $100,000 cash. Spiel Company reported net income of $75,000 and paid dividends of $30,000 for both 20X7 and 20X8. The fair value of shares held by Yang was $110,000 and $105,000 on December 31, 20X7 and 20X8 respectively. -Based on the preceding information, what amount will be reported by Yang as income from its investment in Spiel for 20X8, if it used the fair value method of accounting?

Parent Co. purchases 100% of Son Company on January 1, 20X1 when Parent's retained earnings balance is $520,000 and Son's is $150,000. During 20X1, Son reports $15,000 of net income and declares $6,000 of dividends. Parent reports $105,000 of separate operating earnings plus $15,000 of equity-method income from its 100 percent interest in Son; Parent declares dividends of $40,000. -Based on the preceding information, what is Parent's post-closing retained earnings balance on December 31, 20X1?