Deck 5: Investments and International Operations

Question 1

3_All short-term investments are recorded initially at cost,but are reported on the balance sheet at current market value.

Answer 1

True

Question 2

2_Short-term investments are reported on the balance sheet at current market value or cost,whichever value is highest.

Answer 2

False

Question 3

10_A stock dividend received on short-term investments increases the cost per share of the stock investment.

Answer 3

False

Question 4

1_All share purchases are initially recorded at cost.

Question 5

18_An investor does not accrue dividend revenue at year end in anticipation of a dividend declaration.

Question 6

14_If an equity investment accounted for using fair value has decreased in value,the year-end adjustment requires a debit to Unrealized Loss on Fair-Value Adjustment.

Question 7

11_The unrealized gains and losses on investments reported at fair value are recorded in the non-operating section of a company's income statement.

Question 8

9_Stock dividends on short-term investments do not affect the total cost of the investment.

Question 9

15_When a company sells an investment accounted for using the fair-value method,the gain or loss on the sale is the difference between the sale proceeds and the carrying value of the investment.

Question 10

4_Dividend revenue does accrue through the passage of time.

Question 11

20_When discussing share investments,an investee is defined as:

A) the one who owns shares in a company
B) the shareholder attempting to sell a share
C) the broker who handles a particular share transaction
D) the company that issued the shares

Question 12

6_Receipt of a stock dividend is revenue to the investor.

Question 13

12_The Fair-Value Valuation Allowance account is a companion account to the Short-Term Investments or Long-Term Investments account.

Question 14

13_The Unrealized Gain on Fair-Value Adjustment account appears on the income statement.

Question 15

19_Short-term investments in bonds are reported on the balance sheet at their historical cost.

Question 16

16_When a company purchases a short-term investment,any brokerage fees paid are accounted for as part of the cost of the investment.

Question 17

8_When accounting for short-term investments,losses are recorded when market value increases above cost.

Question 18

17_Short-term investments are reported on the balance sheet at the lower of their original cost or year-end market value.

Question 19

7_Receipt of a stock dividend increases the number of shares held by the investor.

Question 20

5_If a dividend is declared but not yet paid for an investment in shares owned at year end,the company may accrue dividend revenue.

Question 21

LTI Corp.purchased 500 shares as a short-term investment for $5,100 on January 4,2017.The company received a 100% stock dividend on November 30,2017.The market value of one share on December 31,2017 was $6.30.The carrying value per share as at December 31,2017,would be:

A) $10.20
B) $6.30
C) $5.10
D) $3.15

Question 22

39_On June 30,2016,Purvis Corporation purchased some shares for $5,000 as a short-term investment.The shares' market value was $6,000 on December 31,2016,and the market value was $5,500 on December 31,2017.The entry necessary on December 31,2017,to record the change in value would include a:

A) debit to the Short-Term Investments account to increase it from $5,000 to $5,500
B) debit directly to the Retained Earnings account to reduce it by $500
C) debit of $500 to the Unrealized Loss on Fair-Value Adjustment account, which would be reported on the income statement
D) No journal entry would be made.

Question 23

23_The entry to record a stock dividend received on a short-term investment involves:

A) a debit to Cash
B) a credit to Dividend Revenue
C) a debit to the Marketable Securities account
D) no adjusting entry

Question 24

32_A short-term investment acquired for $11,500 has a year-end market value of $10,000.The adjusting entry involves a:

A) debit to Unrealized Loss on Fair-Value Adjustment for $1,500
B) debit to Short-Term Investments for $1,500
C) credit to Unrealized Gain on Fair-Value Adjustment for $1,500
D) No adjusting entry is required.

Question 25

22_To be classified as a current asset,the following condition(s_must be met:

A) The investment must be liquid.
B) The investor must intend to convert the investment to cash within one year or use the investments to pay current liabilities.
C) The investment must be liquid and the investor intends to convert the investment into cash within one year.
D) The investment must actually be sold within one year of its purchase.

Question 26

LTI Corp.purchased 1000 shares as a short-term investment (no significant influence_for $25,000 on January 4,2017.The market value of these shares at December 31,2017 was $23,400.On December 31,2017,the company received a cash dividend of $0.55 per share.

-The entry to record the adjustment to fair value should include a:

A) debit to Fair-Value Valuation Allowance for $1,600
B) credit to Unrealized Gain on Fair-Value Adjustment for $1,600
C) credit to Fair-Value Valuation Allowance for $1,600
D) credit to Investment Revenue for $1,600

Question 27

35_A short-term investment acquired at a cost of $15,000 in 2016 is sold in 2017 for $13,800.After the proper adjusting entry was prepared in 2016,the short-term investment had a carrying value of $14,200.In 2017,the investor should report a(n):

A) Loss on Sale of Short-Term Investment of $400
B) Gain on Sale Short-Term Investment of $800
C) Loss on Sale of Short-Term Investments of $1,200
D) Unrealized Loss on Short-Term Investment of $400

Question 28

LTI Corp.purchased 1000 shares as a short-term investment (no significant influence_for $25,000 on January 4,2017.The market value of these shares at December 31,2017 was $23,400.On December 31,2017,the company received a cash dividend of $0.55 per share.

-The entry to record the dividend should include a:

A) debit to Short-term investment for $55,000
B) credit to Dividend Revenue for $550
C) credit to Investment Revenue for $5,500
D) debit to Dividend Revenue for $55,000

Question 29

Table 16-1
On January 2, 2017, Logan Corporation purchased 2,000 common shares in Downright Corporation for $55 per share and paid a $500 brokerage commission for the purchase. Logan intends to hold this investment for less than a year and classifies it as a Short-Term Investment. The market value of the shares at December 31, 2017, is $58 per share.
28_Refer to Table 16-1.The entry to record the acquisition of these shares includes:

A) a credit to Short-Term Investments for $109,500
B) a debit to Short-Term Investments for $110,000
C) a debit to Short-Term Investments for $110,500
D) a debit to Short-Term Investments for $116,000

Question 30

38_A short-term investment cost $22,000 on March 2,and has declined in value to $20,000 as of December 31.The year-end adjusting entry made to record this decline would include a:

A) credit to the Short-Term Investment account for $2,000
B) credit to the Unrealized Loss on Fair-Value Adjustment account for $2,000
C) debit to the Fair-Value Valuation Allowance account for $2,000
D) credit to the Fair-Value Valuation Allowance account for $2,000

Question 31

Table 16-1
On January 2, 2017, Logan Corporation purchased 2,000 common shares in Downright Corporation for $55 per share and paid a $500 brokerage commission for the purchase. Logan intends to hold this investment for less than a year and classifies it as a Short-Term Investment. The market value of the shares at December 31, 2017, is $58 per share.
29_Refer to Table 16-1.On December 31,2017,Downright Corporation declared a $0.50 cash dividend.Logan Corporation should:

A) debit Dividend Revenue for $1,000
B) credit Dividend Revenue for $1,000
C) credit Short-Term Investments for $1,000
D) debit Short-Term Investments for $1,000

Question 32

37_Short-term investments are reported on the balance sheet at:

A) their original cost
B) their market value
C) the lower of their original cost or year-end market value
D) original cost less cumulative dividends received from the investment plus cumulative equity in income of the investee

Question 33

36_A short-term investment acquired at a cost of $50,000 in 2016 is sold in 2017 for $45,800.After the proper adjusting entry was prepared in 2016,the short-term investment had a carrying value of $43,200.In 2017,the investor should report a(n):

A) Loss on Sale of Short-Term Investment of $4,200
B) Loss on Sale of Short-Term Investment of $2,600
C) Loss on Sale of Short-Term Investment of $6,800
D) Gain on Sale of Short-Term Investment of $2,600

Question 34

Table 16-1
On January 2, 2017, Logan Corporation purchased 2,000 common shares in Downright Corporation for $55 per share and paid a $500 brokerage commission for the purchase. Logan intends to hold this investment for less than a year and classifies it as a Short-Term Investment. The market value of the shares at December 31, 2017, is $58 per share.
30_Refer to Table 16-1.On December 31,2017,Downright Corporation declared a 10% stock dividend.The current market value of the stock is $60 per share.Logan Corporation should:

A) credit Dividend Revenue for $12,000
B) credit Dividend Revenue for $4,000
C) credit Dividend Revenue for $11,000
D) not prepare a journal entry

Question 35

34_An investor has made one short-term investment in shares.If the shares were bought on July 23 for $10,000,and they are worth $13,500 as of year-end,the increase in value will result in:

A) the net investment appearing on the balance sheet with a value of $10,000
B) dividend income of $3,500 reported on the balance sheet
C) a direct $3,500 increase to retained earnings that is not reported on the income statement
D) a $3,500 unrealized gain reported on the income statement

Question 36

33_A short-term investment acquired for $23,200 has a year-end market value of $25,000.The adjusting entry involves a:

A) debit to Unrealized Loss on Fair-Value Adjustment for $1,800
B) debit to Short-Term Investments for $1,800
C) credit to Unrealized Gain on Fair-Value Adjustment for $1,800
D) credit to Short-Term Investments for $1,800

Question 37

31_After the receipt of the stock dividend,a corporation's cost per share in the shares of the investee will:

A) increase
B) decrease
C) remain the same
D) be reduced by 50%

Question 38

26_LTI Corp.purchased 500 shares as a short-term investment for $5,100 on January 4,2017.The company received a 100% stock dividend on November 30,2017.The market value of one share on December 31,2017 was $6.30.The cost per share as at December 31,2017,would be:

A) $10.20
B) $6.30
C) $5.10
D) $3.15

Question 39

40_When accounting for short-term investments:

A) only gains are recorded when market value increases above cost
B) only losses are recorded when market value increases above cost
C) losses and gains are recorded when market value changes
D) losses are recorded only when market value decreases below cost

Question 40

21_Short-term equity investments with no significant influence are reported at:

A) cost as long-term assets on the balance sheet
B) market value as either current assets or long-term investments on the balance sheet
C) market value as current assets on the balance sheet
D) lower of cost or market as current assets on the balance sheet

Question 41

4_Short-term investments and long-term investments are reported separately on the balance sheet.

Question 42

Granite Corporation made the following investment related transactions in 2017 and 2018:
2017
Jan. 10 Grante Corporation purchased 500 shares in Graybar Corporation, as a short-term investment, at $\$ 7.10$ per share and paid $\$ 35$ brokerage commission Jul. 1 Granite Corporation purchased $\$ 10,000$ maturity value $5 \%$ Government of Canada bonds for 98 . The bonds mature on December 31, 2018 and pay interest semi-annually on June 30 and December 31. Granite Corporation intends to hold the bonds as a short-term investment of idle cash. $\text { Sep. } 18 \quad \text { A dividend of } \$ 0.15 \text { per share was received on the Graybar Corporation shares. }$ $\begin{array}{l}\text { Dec. } 31 \text { This is the end of the fiscal year for Granite Corporation. On this date the Graybar } \\\text { Corporation shares were worth } \$ 7.55 \text { per share and the bonds Government } \\\text { of Canada bonds were valued at } 961 / 2 \text {. }\end{array}$ 2018
Jan. 27 Granite Corporation sold the 500 Graybar Corporation shares for $\$ 7.25$ per share and paid $\$ 36$ brokerage commission.
$\text { Jan. } 31 \text { Granite Corporation sold all of the Government of Canada bonds at par. }$ Prepare journal entries for the above transactions.

Question 43

Table 16-6
The following are transactions in the purchase and sale of Epstein Ltd. shares by Monty Inc.
$$\begin{array} { l l } \text { January 15,2017 } & \text { Purchase 1,000 shares of Epstein at \$25.00 } \\\text { Febrary 10,2017 } & \text { Received \$1.00 dividend from Epstein } \\\text { December 31, 2017 } & \text { Epstein reported net income of \$10,000. } \\\text { December 31, 2017 } & \text { Market value of Epstein shares \$24.50. } \\\text { June 30, 2018 } & \text { Sold all shares of Epstein for \$26.50 per share }\end{array}$$ Record the journal entries for the above transactions for Monty Inc.

-Refer to Table 16-6.Assume that the investment in Epstein shares is classified as short-term investment by Monty and Monty has no significant influence over Epstein.

Question 44

Table 16-8
On July 15, 2017, Sanders Ltd. purchased 5,000 common shares in Signet Mining Corporation for $32 per share and paid a $800 brokerage commission for the purchase. Sanders intends to hold this investment for less than a year and classifies it as a Short-Term Investment. The market value of the shares at December 31, 2017, is $29 per share. On February 15, 2018 Signet Mining announced a 2 for 1 stock split. Sanders sold one-half of the shares on March 31, 2018 for $15 per share.
42_Refer to Table 16-8.After the distribution of shares relating to the stock split,the Sanders Ltd.total cost of the investment:

A) increases by 100%
B) decreases by 50%
C) remains the same
D) increases by 150%

Question 45

In early 2017,Brownlee Corporation found itself with idle cash that it decided to invest in the shares of another business.The following events transpired in 2017 and 2018:
2017
Feb. 1 Brownlee Corporation purchased 1,000 shares in Green Corporation at 16.50 per share
This investment was classified as a short-term investment.

Nov. 15 A dividend of $\$ 1$ per share was received on the Green Corporation shares.
Dec. 31 This is the end of the fiscal year for Brownlee Corporation. On this date the Green
Corporation shares were worth 15.45 per share. 2018
$\text {Jan. } 27 \text { Brownlee Corporation sold } 500 \text { Green Corporation shares for } 17.50 \text { per share }$ Prepare journal entries for the above transactions.

Question 46

In early 2017,Kalkay Inc.found itself with idle cash that it decided to invest in the shares of another business.The following events transpired in 2017 and 2018:
2017
Jan 23 Kalkay Inc. purchased 2,000 shares in Tiodnaci Corporation at 16.25 per share and paid a brokerage fee of $\$ 650$ . This investment was classified as a short-term investment
Nov, 15 A dividend of $\$ 1.25$ per share was received on the Tiodnaci Corporation shares. Dec. 31 This is the end of the fiscal year for Kalkay Inc. On this date the Tiodnaci Corporation shares were worth 18.50 per share. 2018
Jan. 27 Kalkay Inc, sold 500 Tiodnaci Corporation shares for 18.00 per share.
Mar 30 A dividend of $\$ 2$ per share was received on the Tiodnaci Corporation shares,
Jun. 30 Kalkay Inc. sold all of the remaining Tiodnaci Corporation shares for 21.00 per share
Prepare journal entries for the above transactions.

Question 47

1_All long-term equity investments are the same and therefore receive the same accounting treatment.

Question 48

A friend of yours,who is an accountant for a large corporation,asked you to review the financial statements he prepared for the company.In your review you noticed that some short-term investments in the shares of other companies have been reported at historical cost.When you asked your friend about them,he told you these investments were in shares of companies listed on the Toronto Stock Exchange,and that his company planned to sell them in the very near future to help pay liabilities that are coming due.Your friend also stated that these investments are carried at cost because of the historical cost principle required by generally accepted accounting principles.
Explain to your friend in detail exactly how the share investments should have been accounted for.Can you think of a reason ASPE requires the use of a value other than historical cost when this type of investment is presented on the balance sheet?

Question 49

Table 16-8
On July 15, 2017, Sanders Ltd. purchased 5,000 common shares in Signet Mining Corporation for $32 per share and paid a $800 brokerage commission for the purchase. Sanders intends to hold this investment for less than a year and classifies it as a Short-Term Investment. The market value of the shares at December 31, 2017, is $29 per share. On February 15, 2018 Signet Mining announced a 2 for 1 stock split. Sanders sold one-half of the shares on March 31, 2018 for $15 per share.
41_Refer to Table 16-8.After the distribution of shares relating to the stock split,the Sanders Ltd.cost per share:

A) increases by 100%
B) decreases by 50%
C) remains the same
D) increases by 150%

Question 50

54_On January 1,2017 the company purchased 100 $1,000,5% Government of Ontario Savings bonds for 98.The bonds mature on December 31,2025 and pay interest semi-annually on June 30 and December 31.The company intends to hold the bonds as a short-term investment of idle cash.At December 31,2017,the end of the investor's fiscal year,the bonds were valued at 97.5.Then on March 31,2018,the company sold the bonds for 99.
Prepare journal entries for 2017 through 2018 relating to the above transactions.

Question 51

2_Equity investments reported at market value on the balance sheet can be either short-term investments or long-term investments.

Question 52

3_Equity investments where there is no significant influence are reported on the balance sheet at the lower of historical cost or market.

Question 53

Table 16-8
On July 15, 2017, Sanders Ltd. purchased 5,000 common shares in Signet Mining Corporation for $32 per share and paid a $800 brokerage commission for the purchase. Sanders intends to hold this investment for less than a year and classifies it as a Short-Term Investment. The market value of the shares at December 31, 2017, is $29 per share. On February 15, 2018 Signet Mining announced a 2 for 1 stock split. Sanders sold one-half of the shares on March 31, 2018 for $15 per share.

-Refer to Table 16-8.Which of the following is the correct accounting treatment on March 31,2018?

A) Credit Short-Term Investments $160,000.
B) Debit Gain on Sale of Investment for $2,500.
C) Debit Loss on Sale of Investment for $70,000.
D) Debit Fair-Value Valuation Allowance for $15,000.

Question 54

In early 2017,Kalkay Inc.found itself with idle cash that it decided to invest in the shares of another business.The following events transpired in 2017 and 2018:
2017
Jan 23 Kalkay Inc. purchased 3,000 shares in Tiodnaci Corporation at 20.00 per share and paid a
Nov. 15 A dividend of $\$ 0.60$ per share was received on the Tiodnaci Corporation shares.
Dec. 31 This is the end of the fiscal year for Kalkay Inc. On this date the Tiodnaci Corporation shares were worth 18.50 per share.
2018
Jan. 27 Kalkay Inc. sold 1,000 Tiodnaci Corporation shares for 21.00 per share.
Mar 30 A dividend of $\$ 1.20$ per share was received on the Tiodnaci Corporation shares.
Jun. 30 Kalkay Inc. sold all of the remaining Tiodnaci Corporation shares for 18.00 per share
Prepare journal entries for the above transactions.

Question 55

5_An investor in shares who has significant influence should account for the investment at fair value.

Question 56

Table 16-8
On July 15, 2017, Sanders Ltd. purchased 5,000 common shares in Signet Mining Corporation for $32 per share and paid a $800 brokerage commission for the purchase. Sanders intends to hold this investment for less than a year and classifies it as a Short-Term Investment. The market value of the shares at December 31, 2017, is $29 per share. On February 15, 2018 Signet Mining announced a 2 for 1 stock split. Sanders sold one-half of the shares on March 31, 2018 for $15 per share.

-Refer to Table 16-8.Which of the following is the correct accounting treatment on December 31,2017?

A) No accounting entry is required as no sale took place.
B) Debit the Fair-Value Valuation Allowance for $15,000.
C) Credit Short-term Investments for $15,000.
D) Debit Unrealized Loss on Fair-Value Adjustment for $15,000.

Question 57

Table 16-7
The following are transactions in the purchase and sale of Straton Ltd. shares by Samuels Inc. $$\begin{array} { l l } \text { January } 15,2017 & \text { Purchased } 2,000 \text { shares of Straton at } \$ 20.00 \text { and J} \\\text { February 10,2017 } & \text { Received } \$ 1.00 \text { dividend from Straton. } \\\text { December 31, 2017 } & \text { Straton reported net income of } \$ 6,000 . \\\text { December 31, 2017 } & \text { Market value of Straton shares } \$ 22.00 . \\\text { June 30, 2018 } & \text { Sold all shares of Straton for } \$ 21.00 \text { per share. }\end{array}$$ Record the journal entries for the above transactions for Samuels Inc.

-Refer to Table 16-7.Assume that the investment in Straton shares is classified as a short-term investment by Samuels and Samuels exerts no significant influence over Straton.

Question 58

In early 2017,Brownlee Corporation found itself with idle cash that it decided to invest in the shares of another business.The following events transpired in 2017 and 2018:
2017
Feb. 1 Brownlee Corporation purchased 1,000 shares in Green Corporation at 15.45 per share
This investment was classified as a short-term investment.

Nov. 15 A dividend of $\$ 1$ per share was received on the Green Corporation shares.
Dec. 31 This is the end of the fiscal year for Brownlee Corporation. On this date the Green
Corporation shares were worth 16.50 per share.
2018
$\text { Jan. } 27 \text { Brownlee Corporation sold } 500 \text { Green Corporation shares for } 17.50 \text { per share }$ Prepare journal entries for the above transactions.

Question 59

A company purchased $17,500 of common shares in Danis Corporation on September 1,2017.This investment was properly classified as a short-term investment.At December 31,2017,the end of the investor's fiscal year,the investment had declined in value to $16,400.On December 1,2018,the company received $700 in dividends from the investment.On December 2,2018,the investment was sold for $18,600.
Prepare journal entries for 2017 through 2018 relating to the above transactions.

Question 60

A company purchased $17,500 of common shares in Danis Corporation on September 1,2017 for $17,500 plus $100 in brokerage fees.This investment was properly classified as a short-term investment.At December 31,2017,the end of the investor's fiscal year,the investment had risen in value to $18,600.On December 1,2018,the company received $700 in dividends from the investment.On December 2,2018,the investment was sold for $16,400.
Prepare journal entries for 2017 through 2018 relating to the above transactions.

Question 61

1_When the equity method is used to account for a share investment,the investment revenue account will be increased by the investor's share of the income reported by the investee.

Question 62

6_Which of the following would NOT be classified as a long-term investment?

A) ownership with a controlling interest in the investee
B) ownership of 30% of investee's common shares with significant influence
C) ownership of 10% of investee's common shares that are actively traded
D) ownership of common shares accounted for using the equity method

Question 63

Table 16-10
On September 1, 2017, Jacob Ltd. purchased 100,000 common shares for a 20% interest in BlueSky Drilling Corporation for $15 per share, and paid a $7,000 brokerage commission for the purchase. Jacob Ltd. intends to hold this investment for several years and does not have significant influence over BlueSky Drilling. The market value of the BlueSky Drilling shares at December 31, 2017, is $19 per share. On February 15, 2018 BlueSky Drilling distributed a total dividend to its' shareholders of $50,000. Jacob Ltd. sold one-half of the shares on June 30, 2018 for $16 per share.

-Refer to Table 16-10.Which of the following is the correct journal entry for December 31,2017?

A) No accounting entry is required as no sale took place
B) $$\begin{array} { | c | r | r | } \hline \text { Fair-Value Valuation Allowance } & 400,000 & \\\hline \text { Unrealized Gain on Fair-Value Adjustment } & & 400,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Investment in BlueSky Drilling Common Shares } & 400,000 & \\\hline \text { Equity-Method Investment Revenue } & & 400,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Long-Term Investments } & 400,000 & \\\hline \text { Unrealized Gain on Long-Term Investments } & & 400,000 \\\hline\end{array}$$

Question 64

Table 16-10
On September 1, 2017, Jacob Ltd. purchased 100,000 common shares for a 20% interest in BlueSky Drilling Corporation for $15 per share, and paid a $7,000 brokerage commission for the purchase. Jacob Ltd. intends to hold this investment for several years and does not have significant influence over BlueSky Drilling. The market value of the BlueSky Drilling shares at December 31, 2017, is $19 per share. On February 15, 2018 BlueSky Drilling distributed a total dividend to its' shareholders of $50,000. Jacob Ltd. sold one-half of the shares on June 30, 2018 for $16 per share.

-Refer to Table 16-10. Which of the following is the correct journal entry to record the receipt of the dividend on the books of Jacob Ltd.?

A) $$\begin{array} { | l | r | r | } \hline \text { Dividends Payable } & 50,000 & \\\hline \text { Cash } & & 400,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Long-Term Investments } & 10,000 & \\\hline \mathrm { Cr } \text {. Dividend Revenue } & & 10,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 10,000 & \\\hline \begin{array} { l } \text { Investment in BlueSky Drilling Common } \\\text { Shares }\end{array} & & 10,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 10,000 & \\\hline \text { Dividend Revenue } & & 10,000 \\\hline\end{array}$$

Question 65

Table 16-2
Big Corporation paid $95,000 to acquire a 30% investment in the common shares of Little Corporation on January 3, 2017. On December 31, 2017, Little Corporation's net income was $210,000 and Little Corporation paid dividends of $80,000. On December 31, 2018, Little Corporation's net income was $170,000 and Little Corporation paid dividends of $60,000. Big Corporation used the equity-method to account for this investment.

-Refer to Table 16-2.At December 31,2017,the balance in Big Corporation's investment in Little Corporation's long-term account should be:

A) $95,000
B) $134,000
C) $158,000
D) $182,000

Question 66

8_Long-Term Equity Investments with a controlling interest (>50% of votes_are recording using the following accounting method:

A) fair-value method
B) equity method
C) proportionate consolidation
D) consolidation

Question 67

Table 16-2
Big Corporation paid $95,000 to acquire a 30% investment in the common shares of Little Corporation on January 3, 2017. On December 31, 2017, Little Corporation's net income was $210,000 and Little Corporation paid dividends of $80,000. On December 31, 2018, Little Corporation's net income was $170,000 and Little Corporation paid dividends of $60,000. Big Corporation used the equity-method to account for this investment.
10_Refer to Table 16-2.Big Corporation's entry to record the acquisition of these shares includes a:

A) debit to Cash for $95,000
B) debit to Short-Term Investments for $95,000
C) debit to Investment in Little Corporation Common Shares for $95,000
D) credit to Investment Revenue for $95,000

Question 68

5_Accounting Standards for Private Enterprises (ASPE_allow parent companies to account for their subsidiaries using the equity method or the cost method,if the cost of providing consolidated financial statements is more than the benefit for users.

Question 69

Leon Inc.needs to account for investment transactions during 2017:
Jan. 15 Purchased 100 Bright Corporation common shares, paying $\$ 75$ per share.
Leon Inc, intends to hold the investment for an indefinite period and
has classified the investment as long-term investments. (No significant influence)

Jun. 30 Received a cash dividend of $\$ 1.50$ per share on the Bright Corporation common shares.
Dec. 31 In spite of management's long-term intentions, Leon sold the Bright Corporation common shares for $\$ 7,260$ .
Prepare journal entries for the above transactions.

Question 70

6_A joint venture can take the form of a corporation or a partnership.

Question 71

Table 16-10
On September 1, 2017, Jacob Ltd. purchased 100,000 common shares for a 20% interest in BlueSky Drilling Corporation for $15 per share, and paid a $7,000 brokerage commission for the purchase. Jacob Ltd. intends to hold this investment for several years and does not have significant influence over BlueSky Drilling. The market value of the BlueSky Drilling shares at December 31, 2017, is $19 per share. On February 15, 2018 BlueSky Drilling distributed a total dividend to its' shareholders of $50,000. Jacob Ltd. sold one-half of the shares on June 30, 2018 for $16 per share.

-Refer to Table 16-10.Which of the following is the correct journal entry on June 30,2018 to record the sale of shares?

A) $$\begin{array} { | l | r | l | } \hline \text { Cash } & 800,000 & \\\hline \text { Loss on Sale of Investment } & 145,000 & \\\hline \begin{array} { l } \text { Investment in BlueSky Drilling Common } \\\text { Shares }\end{array} & &945,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 800,000 & \\\hline \text { Loss on Sale of Long-Term Investments } & 150,000 & \\\hline \text { Fair-Value Valuation Allowance } & & 200,000 \\\hline \text { Long-Term Investments } & & 750,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 800,000 & \\\hline \text { Loss on Sale of Short-Term Investments } & 150,000 & \\\hline \text { Fair-Value Valuation Allowance } & & 200,000 \\\hline \text { Short-Term Investments } & & 750,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 800,000 & \\\hline \text { Loss on Sale of Long-Term Investments } & 145,000 & \\\hline \text { Long-Term Investments } & & 945,000 \\\hline\end{array}$$

Question 72

8_A joint venture is a separate entity or project owned and operated by a small group of businesses.

Question 73

4_The equity method of recording an investment in an investee exists to avoid the manipulation of the investor's income through influencing the dividend policy of its investee.

Question 74

Kalkay Inc.needs to account for the following investment transactions:
2017
Jan. 15 Purchased 10,000 Bright Corporation common shares, paying $\$ 75$ per share.
Kalkay Inc, intends to hold the investment for a long period of time
and has classified the investment as a long-term investment.

Jun. 30 Received a cash dividend of $\$ 1.50$ per share on the Bright Corporation common shares.
Dec. 31 At year end Bright Corporation's shares were valued at $\$ 70$ per share. 2018
Nov 30 Received a cash dividend of $\$ 2.00$ per share on the Bright Corporation common shares.
Dec. 31 At year end Bright Corporation's shares were valued at $\$ 73$ per share. 2019
Mar 31 Kalkay Inc, despite their original intentions,sold $50 \%$ of their
Bright Corporation common shares for $\$ 76.00$ per share due to
a cash shortage they were experiencing.

May 31 Received a cash dividend of $\$ 1.75$ per share on the Bright Corporation common shares
Dec. 31 At year end Bright Corporation's shares were valued at $\$ 77$ per share. Prepare journal entries for the above transactions.

Question 75

Table 16-10
On September 1, 2017, Jacob Ltd. purchased 100,000 common shares for a 20% interest in BlueSky Drilling Corporation for $15 per share, and paid a $7,000 brokerage commission for the purchase. Jacob Ltd. intends to hold this investment for several years and does not have significant influence over BlueSky Drilling. The market value of the BlueSky Drilling shares at December 31, 2017, is $19 per share. On February 15, 2018 BlueSky Drilling distributed a total dividend to its' shareholders of $50,000. Jacob Ltd. sold one-half of the shares on June 30, 2018 for $16 per share.

-Refer to Table 16-10.Which of the following is the correct journal entry to record the purchase?

A) $$\begin{array} { | c | r | r | } \hline \text { Long-Term Investments } & 1,500,000 & \\\hline \text { Brokerage Commission Expense } & 7,000 & \\\hline \text { Cash } & & 1,507,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Short-Term Investments } & 1,500,000 & \\\hline \text { Brokerage Commission Expense } & 7,000 & \\\hline \text { Cash } & & 1,507,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Investment in BlueSky Drilling Common Shares } & 1,500,000 & \\\hline \text { Brokerage Commission Expense } & 7,000 & \\\hline \text { Cash } & & 1,507,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Investment in BlueSky Drilling Common Shares } & 1,500,000 & \\\hline \text { Cash } & & 1,507,000 \\\hline\end{array}$$

Question 76

2_An investor can own more than 20% of the shares of an investee and not exercise significant influence over the investee.

Question 77

7_Long-Term Equity Investments with significant influence are recording using the following accounting method:

A) fair-value method
B) equity method
C) proportionate consolidation
D) consolidation

Question 78

Table 16-2
Big Corporation paid $95,000 to acquire a 30% investment in the common shares of Little Corporation on January 3, 2017. On December 31, 2017, Little Corporation's net income was $210,000 and Little Corporation paid dividends of $80,000. On December 31, 2018, Little Corporation's net income was $170,000 and Little Corporation paid dividends of $60,000. Big Corporation used the equity-method to account for this investment.
9_Refer to Table 16-2.Big Corporation's entry to record its share of 2017 income of Little Corporation involves a:

A) debit to Investment in Little Corporation for $95,000
B) credit to Equity-Method Investment Revenue for $24,000
C) credit to Dividend Revenue for $24,000
D) debit to Investment in Little Corporation for $63,000

Question 79

7_A joint venture is accounted for using the equity method.

Question 80

3_If an investor company owns 25% of the shares of another business and exercises significant influence,dividends received from the investee are generally recorded by increasing the value of the investment account.