Deck 12: Reporting and Interpreting Investments in Other Corporations

Question 1

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

Answer 1

True
Explanation: The equity method is required to be used when an investor has the ability to exert significant influence over the investee, regardless of the ownership level.

Question 2

Management must have the intent and ability to hold a bond investment until maturity if it is to be classified as a held-to-maturity security.

Answer 2

True
Explanation: Management must demonstrate the intent and ability in order to use the held-to-maturity classification.

Question 3

Held-to-maturity bond investments have to be reported on the balance sheet at fair value.

Answer 3

False
Explanation: They are reported on the balance sheet at amortized cost or fair value if the election is made.

Question 4

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

Question 5

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

Question 6

Investments classified other than as held-to-maturity bond investments have to be reported on the balance sheet at fair value.

Question 7

A realized gain or loss is reported on the income statement when a fair value adjustment is made.

Question 8

Use of the equity method is required for investments between 20 and 50% of a company's common stock regardless of the investor's ability to influence the investee.

Question 9

A realized gain or loss is reported on the income statement when a trading security is sold.

Question 10

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

Question 11

The extent of influence and control over another company is a critical factor in determining the proper method of accounting for a long-term investment in the common stock of another company.

Question 12

The only income reported on the income statement for a stock from the available-for-sale portfolio prior to its sale is dividend revenue.

Question 13

If a bond is bought at a discount,then interest revenue will be less than the cash payment.

Question 14

The sale of a stock from the available-for-sale portfolio creates a gain or loss on the income statement based on the difference between the stock's original cost and its selling price.

Question 15

A decline in the fair value of the available-for-sale portfolio reduces assets and net income.

Question 16

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

Question 17

Ocean Corporation owns 30% of Woods Corp.for which they paid $5.5 million and uses the equity method to account for the investment.Woods Corp.paid a $100,000 dividend; the investment in Woods Corp.account will decrease by $30,000,which is Ocean's proportionate share of the dividend.

Question 18

An increase in the fair value of the trading securities portfolio increases both assets and net income.

Question 19

If a bond is bought at a premium,the amortized book value of the bond investment will decrease as the bond matures.

Question 20

Investments in bonds intended to be sold before they reach maturity should be reported under the market value method.

Question 21

The assets of the subsidiary are depreciated and amortized over their useful lives as a part of the consolidation process.

Question 22

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?

A)Since the bonds were issued at a premium, the cash interest will be greater than interest revenue.
B)Since the bonds were issued at a premium, the book value of the bond investment will decrease.
C)The bond investment must be accounted for using the held-to-maturity classification.
D)The company would recognize unrealized gains or losses on the bonds under the fair value approach within the income statement.

Question 23

Piano Company owns 55% of the voting common stock shares of Keys Corporation.Which of the following is true?

A)The investment would be accounted for using the equity method.
B)The investment would be accounted for by consolidation.
C)The investment would be accounted for under the market value method.
D)The investment would be accounted for under the amortized cost method.

Question 24

An investment accounted for under the equity method is always reported on the balance sheet at fair value.

Question 25

Use of the consolidated financial statement method of accounting for a long-term investment in common stock of another company is required when the ownership of its voting stock is

A)20% or more.
B)less than 20%.
C)between 20% and 50%.
D)more than 50%.

Question 26

Goodwill is reported on a consolidated balance sheet only if it was acquired in the merger or acquisition.

Question 27

Significant influence over the operating and financial policies of another company may be indicated by

A)participation on its board of directors.
B)participation in its policy-making process.
C)evidence of material transactions between the two companies.
D)all of the above responses.

Question 28

An investment accounted for under the equity method would record an increase in the investment account and create net income for an amount equal to the proportionate share of the investee's reported net income.

Question 29

An investment accounted for under the equity method would record a reduction in the investment account for the proportionate share of the investee's reported net loss.

Question 30

Idaho Company purchased 30% of the outstanding preferred stock (nonvoting)of Potato Corporation as a long-term investment.Which of the following classifications should be used by Idaho Company in accounting for the investment?

A)Trading securities.
B)Held-to-maturity.
C)Available-for-sale.
D)Consolidation.

Question 31

Any unrealized gains or losses on trading securities would have to be added back to or deducted from net income on the statement of cash flows under the indirect method of determining cash flows from operating activities.

Question 32

Miller Corp.purchased $1,000,000 of bonds at 96.The bonds pay interest at the rate of 10%.Miller intends to hold these bonds to maturity.Which of the following statements is correct?

A)Since the bonds were purchased at a premium, the cash interest will be less than interest revenue.
B)Since the bonds were purchased at a discount, the book value of the bond investment will increase.
C)The bond investment must be accounted for using the trading securities classification.
D)The company would not recognize unrealized gains or losses on the bonds.

Question 33

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

A)Investments in bonds that management intends to hold to maturity.
B)Investments in stocks or bonds that are held primarily for the purpose of selling them in the near future.
C)Investments in more than fifty percent of the voting stock of another company.
D)Investments in securities that are accounted for under the market value method other than trading securities and held-to-maturity investments.

Question 34

Madison Inc.acquires 100% of the voting stock of Allison Corp.for $10.0 million.Allison's total assets at fair value equaled $12.5 million and Allison had liabilities at fair value equal to $3.4 million.Madison will report goodwill of $0.9 million.

Question 35

When the acquiring company purchases 100% of the investee's stock,the investee's assets and liabilities will be consolidated with those of the acquiring company at their book values.

Question 36

Gilman Company purchased 100,000 of the 250,000 shares of common stock of Burke Corporation on January 1,2010,at $40 per share as a long-term investment.The records of Burke Corporation showed the following on December 31,2010:

$\begin{array}{lccc}\text { 2010 net income} & \$ 575,000 \\ \text { Dividends declared and paid during December, 2010 } & \$ 30,000\\\text { Market price per share} & \$ 42 \\\end{array}$
At what amount should Gilman Company report the Burke investment on the December 31,2010 balance sheet?

A)$4,218,000
B)$4,000,000
C)$4,124,000
D)$3,800,000

Question 37

Chang Corp.purchased $1,000,000 of bonds at par value on April 1,2010.The bonds pay interest at the rate of 10%.Chang intends to hold these bonds to maturity.Which of the following statements is false?

A)Since the bonds were issued at par value, the cash interest will be the same as interest revenue.
B)The bonds will earn $75,000 of interest by December 31, 2010.
C)The bond investment must be accounted for using the fair value approach.
D)Since they were classified as held-to-maturity, the company would recognize no unrealized gains or losses on the bonds over their lifetime.

Question 38

When an investment accounted for under the equity method is sold,the gain or loss reported on the income statement is the difference between the selling price and its original cost.

Question 39

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

A)Investments in bonds that management intends to hold to maturity.
B)Investments in stocks or bonds that are held primarily for the purpose of selling them in the near future.
C)Investments in more than fifty percent of the voting stock of another company.
D)Investments that provides the investor significant influence over the investee, but not control over the investee.

Question 40

Subsequent to a merger,any revenues and expenses of the subsidiary would be combined with those of the parent company on the consolidated income statement.

Question 41

Which of the following statements is correct?

A)Any unrealized holding gain or loss on investments in trading securities is reported on the income statement.
B)Any unrealized holding gain or loss on investments in available-for-sale securities is reported on the income statement.
C)All unrealized gains and losses are reported on the income statement regardless of the method used to account for the investment.
D)Any unrealized holding gain or loss on investments in trading securities or in available-for-sale securities is reported on the income statement.

Question 42

JDR Company purchased 40% of the common stock of YRK Corporation on January 1,2010,for $2,000,000 as a long-term investment.The records of YRK Corporation showed the following on December 31,2010:


$\begin{array}{lccc}\text { 2010 net income} &\$ 290,000 \\\text { Dividends declared and paid during December, 2010 } &\$ 20,000\end{array}$
How much investment income should JDR report from the YRK investment during 2010?

A)$290,000
B)$30,000
C)$116,000
D)$12,000

Question 43

Gilman Company purchased 100,000 of the 250,000 shares of common stock of Burke Corporation on January 1,2010,at $40 per share as a long-term investment.The records of Burke Corporation showed the following on December 31,2010:

$\begin{array}{lccc}\text { 2010 net income} & \$ 575,000 \\ \text { Dividends declared and paid during December, 2010 } & \$ 30,000\\\text { Market price per share} & \$ 42 \\\end{array}$
How much should Gilman Company report as investment income from the Burke investment during 2010?

A)$230,000
B)$218,000
C)$12,000
D)$30,000

Question 44

On January 1,2010,Short Company purchased as an available-for-sale investment,20,000 shares (15% of the outstanding voting shares)of Daniel Corporation's $1 par value common stock at a cost of $50 per share.During November 2010,Daniel declared and paid a cash dividend of $2 per share.At December 31,2010,end of the accounting period,Daniel's shares were selling at $48.The 2010 financial statements for Short Company should report the following amounts: $$\begin{array} { l c c c } & \underline { \text { Long-Term } } & \underline { \text { Unrealized Holding } } & \underline { \text { Investment } } \\& \underline { \text { Investment } } & \underline { \text { Gains/Losses } } & \underline { \text { Revenue } } \\\text { A. } & 1,000,000 & 40,000 & 40,000 \\\text { B. } & 960,000 & \text { Zero } & \text { Zero } \\\text { C. } & 1,000,000 & 80,000 & \text { Zero } \\\text { D. }& 960,000 & 40,000 & 40,000\end{array}$$

A)Option A
B)Option B
C)Option C
D)Option D

Question 45

The primary difference in accounting for available-for-sale investments in stock and accounting for trading investments in stock is which of the following?

A)Measuring the market value of the long-term and short-term investment portfolios on the balance sheet.
B)Determination of the acquisition cost.
C)Where the unrealized holding loss or gain on investments is reported within the financial statements.
D)Determination of the unrealized holding gain or loss.

Question 46

Lyrical Company purchased equity securities for $500,000 and classified them as trading securities on September 15,2010.On December 31,2010,the current market value of the securities was $481,000.How should the investment be reported within the 2010 financial statements?

A)The investment in trading securities would be reported in the balance sheet at its $481,000 market value.
B)The investment in trading securities would be reported in the balance sheet at its $500,000 cost.
C)A realized holding loss on the trading securities would be reported on the income statement.
D)The investment in trading securities would be reported in the balance sheet at its $481,000 market value and a realized holding loss on the trading securities would be reported on the income statement.

Question 47

Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock which constitutes 10% of Martin's voting stock on June 30,2010 for $42 per share.Phillips' intent is to keep these shares beyond the current year.On December 20,2010,Martin paid a $4,000,000 cash dividend.On December 31,Martin's stock was trading at $45 per share and their reported 2010 net income was $52 million.What method of accounting will Phillips use to account for this investment?

A)Amortized cost method.
B)Equity method.
C)Fair value method.
D)Consolidation.

Question 48

Which of the following is true about passive investments?

A)The investing company usually owns less than 20% of the voting stock in the investee and they are reported on the balance sheet at cost.
B)These investments must not have any voting rights.
C)The market value method requires realized gains and losses to be recognized on the income.
D)The investing company must usually own less than 20% of the voting stock in the investee and these investments must be reported at market value on the balance sheet even though the historical cost principal is violated.

Question 49

Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock which constitutes 10% of Martin's voting stock on June 30,2010 for $42 per share.Phillips' intent is to keep these shares beyond the current year.On December 20,2010,Martin paid a previously declared $4,000,000 cash dividend.On December 31,Martin's stock was trading at $45 per share and their reported 2010 net income was $52 million.What investment value will be reflected on Phillips' balance sheet at December 31,2010?

A)$42,000,000
B)$45,000,000
C)$46,800,000
D)$47,200,000

Question 50

Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation,accounted for using the equity method.During 2010,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 1,2010.How much income should Heartfelt report during 2010 from the Candle investment?

A)$200,000.
B)$40,000.
C)$4,000.
D)$10,000.

Question 51

Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock which constitutes 10% of Martin's voting stock on June 30,2010 for $42 per share.Phillips' intent is to keep these shares beyond the current year.On December 20,2010,Martin paid a $4,000,000 cash dividend.On December 31,Martin's stock was trading at $45 per share and their reported 2010 net income was $52 million.What effect will the dividend have on Phillips' 2010 financial statements?

A)It would increase cash and increase investment income.
B)It would increase cash and decrease investment in associated companies.
C)It would increase cash and increase net unrealized gains/losses.
D)It would increase cash and increase the allowance to value at market account.

Question 52

On July 1,2010,Surf Company purchased long-term investments in available-for-sale securities as follows:
Blue Corporation common stock (par $5)2,000 shares at $16 per share.
Black Company preferred stock (par $20)1,500 shares at $30 per share.
The quoted market prices per share on December 31,2010 were as follows:
Blue Corporation stock,$15 per share
Black Company stock,$30 per share
Each of the long-term investments represents 10% of the total shares outstanding.The combined carrying value of the long-term investments reported in the balance sheet at December 31,2010 would be which of the following?

A)$77,000
B)$73,500
C)$71,500
D)$75,000

Question 53

Libby Company purchased equity securities for $100,000 and classified them as available-for-sale securities on September 15,2010.At December 31,2010,the current market value of the securities was $105,000.How should the investment be reported in the 2010 financial statements?

A)The investment in available-for-sale securities would be reported on the balance sheet at its $100,000 cost.
B)The $5,000 unrealized gain is reported within the income statement.
C)The $5,000 realized gain is reported within the income statement.
D)The investment in available for sale securities would be reported in the balance sheet at its $105,000 market value and an unrealized holding gain on available-for-sale securities would be reported in the stockholders' equity section of the balance sheet.

Question 54

JDR Company purchased 40% of the common stock of YRK Corporation on January 1,2010,for $2,000,000 as a long-term investment.The records of YRK Corporation showed the following on December 31,2010:

$\begin{array}{lccc}\text { 2010 net income} &\$ 290,000 \\\text { Dividends declared and paid during December, 2010 } &\$ 20,000\end{array}$
At what amount should JDR report the YRK investment on the December 31,2010 balance sheet?

A)$2,116,000
B)$2,000,000
C)$4,124,000
D)$2,108,000

Question 55

On July 1,2010,as a long-term investment in available-for-sale securities,Wildlife Supply Company purchased 6,000 shares of the preferred stock (nonvoting)of Nature Company for $30 per share (18,000 shares outstanding).The records of Nature Company reflect the following:



$\begin{array}{lccc}\text { 2010 net income} &\$ 600,000 \\\text { Dividends declared and paid during December, 2010 } &\$ 6,500\\\text { December 31,2010 market price per share} &\$ 27 \\\end{array}$
The amount reported on the balance sheet by Wildlife Company for its investment at December 31,2010 would be which of the following?

A)$160,000
B)$162,000
C)$182,000
D)$200,000

Question 56

When is the equity method used to account for long-term investments in stocks?

A)When the investment is between 20 - 50% of the voting stock, regardless of whether or not significant influence can be achieved.
B)When the investment is greater than 50% of the voting stock, regardless of whether or not significant influence can be achieved.
C)When the investment is greater than 50% of the voting stock and significant influence can be achieved.
D)When the investment is between 20 - 50% of the voting stock and significant influence can be achieved.

Question 57

On July 1,2010,Carter Company purchased trading securities as follows:
Dark Corporation common stock (par $1)10,000 shares at $25 per share.
Janvrin Corporation preferred stock (par $100)2,000 shares at $105 per share.
The quoted market prices per share on December 31,2010 were as follows:
Dark Corporation stock,$27 per share
Janvrin Corporation stock,$104 per share
Each of the investments represented 5% of the total shares outstanding.The carrying value amount of the investments at December 31,2010 should be

A)$478,000
B)$460,000
C)$458,000
D)$480,000

Question 58

Which of the following statements regarding the accounting for an investment using the equity method is incorrect?

A)It is used for investments between 20 - 50% of the outstanding voting stock when the investor has the ability to exert significant influence.
B)The investment account is increased by the proportionate share of investee net income.
C)The investment account is decreased by the proportionate share of investee dividends.
D)Investment income equals the proportionate share of investee dividends.

Question 59

When accounting for investments in trading securities,any decline in market value below cost of the investments is reported in which of the following ways?

A)On the income statement as a realized loss.
B)On the income statement as an unrealized holding loss.
C)On the balance sheet as a realized loss.
D)On the balance sheet as an unrealized holding loss in the stockholders' equity section.

Question 60

On January 1,2010,Entertainment Company acquired 15% of the outstanding voting stock of Rocker Company as a long-term investment in available-for-sale securities.During 2010,Rocker Company reported net income of $1,500,000 and dividends declared and paid of $250,000.How much income will be reported during 2010 from the Rocker investment?

A)$225,000
B)$37,500
C)$187,500
D)$250,000

Question 61

How is goodwill accounted for subsequent to acquisition?

A)It should be written off as soon as possible against retained earnings.
B)It should not be amortized because it has an indefinite life.
C)It should be written off as soon as possible as an expense.
D)It is amortized over its estimated useful life.

Question 62

On January 1,2010,Calas Company acquired 40% of the outstanding voting stock of Nick Company as a long-term investment.During 2010,Nick reported net income of $10,000 and declared and paid dividends of $4,000.During 2010,Calas Company should report "Income from investee earnings" of

A)$3,000.
B)$4,000.
C)$2,400.
D)$10,000.

Question 63

The balance sheet of Mini Company was as follows immediately before it was acquired by Maxi Company:

$\begin{array}{l}\begin{array} { l } \text { Cash } &&&&&& \$ 90,000 \\\text { Accounts receivable (net) }&&&&&&50,000 \\\text { Inventory } &&&&&&150,000 \\\text { Plant and equipment (net) } &&&&&&100,000 \\\text { Total Assets } &&&&&&\$ 390,000\end{array}\\\begin{array} { l } \text { Accounts payable } & \$ 40,000 \\\text { Notes payable } & 80,000 \\\text { Common stock } & 155,000 \\\text { Retained earnings } & 115,000 \\\text { Total Liabilities and Stockholders' Equity } & \$ 390,000\end{array}\end{array}$
On January 1,2010,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?

A)$430,000
B)$470,000
C)$120,000
D)$390,000

Question 64

Paxton Corporation acquired all of the outstanding voting stock of Stanley Company.How should the assets and liabilities of the acquired company be reported on the consolidated financial statements immediately after the acquisition?

A)Nominal estimated values determined by the parent company.
B)Market values on the date of the acquisition.
C)The previously reported book values.
D)Market values on the date of the acquisition less accumulated depreciation.

Question 65

During 2010,Manning Corporation purchased 100% of the outstanding voting shares of Brady Corporation for $4.0 million.Brady's assets had a book value of $5.0 million and fair market value of $6.5 million.The book value as well as fair market value of Brady's liabilities equaled $3.2 million.How much was paid for goodwill?

A)$0
B)$2,200,000
C)$700,000
D)$1,000,000

Question 66

Photo Finish Corporation bought a 40% interest in the voting stock of Click It Corporation's $1 par value common stock for $20 million (2 million shares at a $10 market price)on March 31,2011.On December 31,2011,Click It paid a $1 million cash dividend declared earlier in 2011 and reported net income for the year ended 2011 of $10 million.On December 31,2011,Click It's stock was trading at $11.50 per share. What effect will the dividend have on Photo Finish's financial statements?

A)It would increase cash and increase investment income.
B)It would increase cash and decrease investment in Click It.
C)It would increase cash and increase net unrealized gains/losses.
D)It would increase cash and increase the allowance to value at market account.

Question 67

On January 1,2010,Sheldon Company paid $750,000 cash for 100% of the outstanding common stock of Mullen Company; Mullen's stockholders equity on the date of acquisition was $550,000.The current market value of Mullen's net assets was $70,000 in excess of their book value.What was the amount of goodwill purchased by Sheldon Company?

A)$200,000
B)$130,000
C)$480,000
D)$270,000

Question 68

Which of the following is the primary justification for reporting the acquisition of a controlling interest on a consolidated basis?

A)The companies are legally and in economic substance separate.
B)The companies are legally and in economic substance one entity.
C)The companies are legally one entity but they are separate in economic substance.
D)The companies are legally separate but they are one entity in economic substance.

Question 69

Which of the following statements is correct?

A)When the equity method is used to account for an investment in an investee, the reported share of investee income must be added to net income on the statement of cash flows.
B)When the equity method is used to account for an investment in an investee, the cash dividends received are cash inflow from investing activities.
C)Any realized or unrealized gains or losses that were reported on the income statement under the market value method must be removed from net income in the operating activities section of the statement of cash flows.
D)When the equity method is used to account for an investment in an investee, the reported share of investee dividends must be deducted from net income on the statement of cash flows.

Question 70

Fun with Florals Corporation acquired all the voting shares of Crafts to Go Corporation under the purchase method.Which of the following statements about the consolidated statements is true?

A)The assets and liabilities of Crafts to Go Corporation would be not revalued and disclosed at their market values on the date of acquisition.
B)Fun with Florals will use the equity method of accounting for this investment.
C)Fun with Florals will report Crafts to Go Corporation's revenues and expenses on a consolidated income statement.
D)Fun with Florals will use the market value method of accounting for this investment.

Question 71

Photo Finish Corporation bought a 40% interest in the voting stock of Click It Corporation's $1 par value common stock for $20 million (2 million shares at a $10 market price)on March 31,2011.On December 31,2011,Click It paid a $1 million cash dividend declared earlier in 2011 and reported net income for the year ended 2011 of $10 million.On December 31,2011,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 31,2011 balance sheet?

A)$20,000,000
B)$23,000,000
C)$23,600,000
D)$24,000,000

Question 72

When is the equity method not used to account for long-term investments in stocks?

A)When the investment is 30% of the voting stock and significant influence can be achieved.
B)When the investment is 15% and significant influence can be achieved.
C)When the investment is greater than 50% of the voting stock and control is achieved.
D)When the investment is 40% of the voting stock and significant influence can be achieved.

Question 73

On January 1,2010,Palmer,Inc.bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000.The equity method of accounting for this investment is used.During 2010,Arnold Corporation reported $30,000 of net income and paid $10,000 in cash dividends.At the end of 2010,the shares had a market value of $150,000.How much income will Palmer report from the Arnold investment during 2010?

A)$12,000
B)$30,000
C)$10,000
D)$4,000

Question 74

On January 1,2010,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?

A)$150,000
B)$40,000
C)$50,000
D)$250,000

Question 75

The balance sheet of Mini Company was as follows immediately before it was acquired by Maxi Company:

$\begin{array}{l}\begin{array} { l } \text { Cash } &&&&&& \$ 90,000 \\\text { Accounts receivable (net) }&&&&&&50,000 \\\text { Inventory } &&&&&&150,000 \\\text { Plant and equipment (net) } &&&&&&100,000 \\\text { Total Assets } &&&&&&\$ 390,000\end{array}\\\begin{array} { l } \text { Accounts payable } & \$ 40,000 \\\text { Notes payable } & 80,000 \\\text { Common stock } & 155,000 \\\text { Retained earnings } & 115,000 \\\text { Total Liabilities and Stockholders' Equity } & \$ 390,000\end{array}\end{array}$
On January 1,2010,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 was the amount of goodwill purchased by Maxi Company?

A)$20,000
B)$40,000
C)$50,000
D)$60,000

Question 76

Which of the following statements is false?

A)Dividends received from stock investments increase cash flows from investing activities.
B)Income from investments accounted for using the equity method doesn't create cash flows.
C)Sale of stock investments is a cash inflow from investing activities.
D)Dividends received from stock investments accounted for using the equity method don't create net income but do create cash flows.

Question 77

On January 1,2010,Turtle Inc.bought 30% of the outstanding shares of Shell Corporation at a cost of $150,000.The equity method of accounting for this investment is used.During 2010,Shell Corporation reported $40,000 of net income and paid $5,000 in cash dividends.At the end of 2010,the shares had a market value of $160,000.How much investment income will Turtle report from the Shell investment during 2010?

A)$12,000
B)$40,000
C)$5,000
D)$1,500

Question 78

On January 1,2010,Turtle Inc.bought 30% of the outstanding shares of Shell Corporation at a cost of $150,000.The equity method of accounting for this investment is used.During 2010,Shell Corporation reported $40,000 of net income and paid $5,000 in cash dividends.At the end of 2010,the shares had a market value of $160,000.What investment balance will be reported on Turtle's December 31,2010 balance sheet?

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

Question 79

Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation,accounted for using the equity method.During 2010,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 1,2010.At what amount is the Candle investment reported on the December 31,2010 balance sheet?

A)$500,000.
B)$540,000.
C)$496,000.
D)$536,000.

Question 80

On January 1,2010,Palmer,Inc.bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000.The equity method of accounting for this investment is used.During 2010,Arnold Corporation reported $30,000 of net income and paid $10,000 in cash dividends.At the end of 2010,the shares had a market value of $150,000.At what amount should the Arnold investment be reported at on the December 31,2010 balance sheet?

A)$150,000
B)$158,000
C)$145,000
D)$148,000