Deck 14: Reporting and Interpreting Investments in Other Corporations

Question 1

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 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

Under the equity method,dividends received are recognized by increasing the Investment Revenue account.

Question 5

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

Question 6

The equity investment portfolio is adjusted to fair value at the end of each period with the offsetting effect reported on the income statement as a realized gain or loss.

Question 7

For all periods in which a debt security is held in the available-for-sale securities portfolio,the only income reported on the income statement is interest revenue

Question 8

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

Question 9

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

Question 10

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

Question 11

Passive debt investments other than held-to-maturity investments are reported on the balance sheet at fair value.

Question 12

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

Question 13

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

Question 14

Barnum Company owns an investment and uses the equity method of accounting.Under the equity method of accounting,Barnum would decrease the Investment account for the proportionate share of the affiliate's reported net loss.

Question 15

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

Question 16

All investments other than held-to-maturity bond investments are reported on the balance sheet at their fair value as of the balance sheet date.

Question 17

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

Question 18

When a trading security is sold,three journal entries are required: one to adjust the security to fair value,another to record the sale,and a third to adjust retained earnings.

Question 19

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

Question 20

A realized gain or loss is reported on the income statement when an equity investment account is adjusted to reflect changes in fair value.

Question 21

The accounting for passive investments in equity securities is similar to the accounting for trading debt securities.

Question 22

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

Question 23

Subsequent to a merger,the assets and liabilities of the acquired company will continue to be accounted for within the acquired company's books.

Question 24

Lyrical Company purchased debt securities for $500,000 and classified them as trading securities on September 15,2019.On December 31,2019,the current fair value of the securities was $481,000.How should the investment be reported within the 2019 financial statements?

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

Question 25

Idaho Company purchased,as a long-term investment,30% of the outstanding bonds of Potato Corporation.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 26

On the date that one company acquires 100% of the voting stock of another company,the book value of the acquired assets and liabilities will be combined with book values of the assets and liabilities of the acquiring company.

Question 27

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

Question 28

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 the original cost of the investment.

Question 29

Which of the following statements is correct?

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

Question 30

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

Question 31

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 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 debt securities that are passive investments other than trading securities and held-to-maturity investments and are accounted for under the fair value method.

Question 32

Libby Company purchased debt securities for $100,000 and classified them as available-for-sale securities on September 15,2019.At December 31,2019,the current fair value of the debt securities was $105,000.How should the investment be reported in the 2019 financial statements?

A)The debt 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 debt investment in available-for-sale securities would be reported in the balance sheet at its $105,000 fair value and an unrealized holding gain on available-for-sale securities would be reported in the stockholders' equity section of the balance sheet.

Question 33

On January 1,2019,Entertainment Company acquired 15% (80,000 shares)of the outstanding voting stock of Rocker Company as a long-term investment for $1,784,000.During 2019,Rocker Company reported net income of $1,500,000 and dividends were declared and paid in the amount of $250,000.How much income will be reported during 2019 from the Rocker investment if the year-end price of the shares is $22.30 per share?

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

Question 34

For an investment accounted for under the equity method,the Investment account along with an investment income account would be increased for an amount equal to the investor's proportionate share of the affiliate's reported net income.

Question 35

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 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 provide the investor significant influence over the investee,but not control over the investee.

Question 36

If a bond is purchased at a discount,the amortized book value of the bond investment will increase as the bond approaches maturity.

Question 37

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

Question 38

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 39

Chang Corp.purchased $1,000,000 of bonds at par value on April 1,2019.The bonds pay interest at the rate of 10%.Chang intends and has the ability 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 31,2019.
C)The bond investment must be accounted for using the fair value method.
D)Since the bonds were classified as held-to-maturity,the company would not recognize unrealized gains or losses on the bonds during the period held by Chang.

Question 40

If a bond is purchased at a discount,then interest revenue using the effective interest method will be less than the cash interest received.

Question 41

Yoga Co.purchased 15% of Glow Company's outstanding bonds during 2019 for $255,000.The bonds had a $272,000 fair value at the end of 2019 and a $238,000 fair value at the end of 2020.If the bonds are accounted for as trading securities,which of the following statements is correct?

A)The 2019 unrealized gain is $17,000,but is not included in Yoga's 2019 net income.
B)The 2020 unrealized loss is $34,000,and is reported on Yoga's balance sheet as a component of stockholders' equity.
C)The 2020 unrealized loss is $34,000 is included in Yoga's 2020 net income.
D)The 2019 unrealized gain is $17,000 and is reported on Yoga's balance sheet as a component of stockholders' equity.

Question 42

Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock,which constitutes 10% of Martin's voting stock on June 30,2019 for $42 per share.Phillips' intent is to keep these shares beyond the current year.On December 20,2019,Martin paid a $4,000,000 cash dividend.On December 31,Martin's stock was trading at $45 per share and Martin reported 2019 net income of $52 million.

- What investment value will be reflected on Phillips' balance sheet at December 31,2019?

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

Question 43

Which of the following is true about a passive investment in common stock?

A)The investing company usually owns less than 20% of the voting stock in the affiliate and the investment is reported on the balance sheet at cost.
B)The investment must not have any voting rights.
C)The fair value method requires unrealized gains and losses to be recognized in the stockholders' equity section of the balance sheet.
D)The investing company usually owns less than 20% of the voting stock in the affiliate and the investment must be reported at fair value on the balance sheet.

Question 44

When accounting for investments in trading securities,any decline in fair value below the 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 45

Lumber Company purchased 16% of Jack Company's common stock during 2019 for $160,000.The 16% investment in Jack had a $144,000 fair value at the end of 2019 and a $168,000 fair value at the end of 2020. Which of the following statements is correct?

A)The 2019 unrealized loss is $16,000,but is not included in Lumber's 2019 net income.
B)The 2020 unrealized gain is $8,000,and is included in Lumber's 2020 net income.
C)The 2020 unrealized gain is $24,000 and is included in Lumber's 2020 net income.
D)The 2019 unrealized loss is $16,000 and is reported on Lumber's balance sheet as a component of stockholders' equity and is not reported on the income statement.

Question 46

Rye Company purchased 25% of Lena Company's common stock during 2019 for $150,000.The Investment in Lena had a $160,000 fair value at the end of 2019 and a $140,000 fair value at the end of 2020.

-Lena Company reported net income of $60,000 in 2019 and $72,000 in 2020 and declared and paid dividends of $30,000 each year.On Rye Company's balance sheet at December 31,2020,what amount was reported for the investment in Lena Company?

A)$168,000.
B)$175,000.
C)$160,500.
D)$150,500.

Question 47

Which of the following statements regarding the accounting for a common stock investment using the equity method is incorrect?

A)The equity method is used for investments of ownership between 20% and 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 affiliate net income.
C)The investment account is decreased by the proportionate share of affiliate dividends.
D)Investment income equals the proportionate share of affiliate dividends.

Question 48

On January 2,2018,Surfside Co.purchased 12,000 shares of Sand,Inc.for $240,000.The investment represented 12% of Sand's outstanding shares.On December 31,2018 each share of Sand was selling for $19 per share and on December 31,2019 each share of Sand was selling for $23 per share

-.Sand declared and paid dividends totaling $20,000 in 2018 and 2019.What was the total amount reported on the income statement in 2019 by Surfside for its investment in Sand?

A)$38,400.
B)$50,400.
C)$2,400.
D)$45,600.

Question 49

On January 2,2018,Surfside Co.purchased 12,000 shares of Sand,Inc.for $240,000.The investment represented 12% of Sand's outstanding shares.On December 31,2018 each share of Sand was selling for $19 per share and on December 31,2019 each share of Sand was selling for $23 per share.

-Which of the following correctly presents the entries made by Surfside to its investment account for this investment?

A)January 2,2018,debit $240,000;December 31,2018,credit $12,000;December 31,2019,debit $48,000.
B)January 2,2018,debit $240,000;December 31,2018,credit $12,000;December 31,2019,debit $36,000.
C)January 2,2018,debit $240,000;December 31,2018,debit $12,000;December 31,2019,credit $36,000.
D)January 2,2018,credit $240,000;December 31,2018,debit $12,000;December 31,2019,credit $48,000.

Question 50

Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock,which constitutes 10% of Martin's voting stock on June 30,2019 for $42 per share.Phillips' intent is to keep these shares beyond the current year.On December 20,2019,Martin paid a $4,000,000 cash dividend.On December 31,Martin's stock was trading at $45 per share and Martin reported 2019 net income of $52 million.

- What effect will the dividend have on Phillips' 2019 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 investment account.

Question 51

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

A)When the investment is between 20% and 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% and 50% of the voting stock and significant influence can be achieved.

Question 52

Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock,which constitutes 10% of Martin's voting stock on June 30,2019 for $42 per share.Phillips' intent is to keep these shares beyond the current year.On December 20,2019,Martin paid a $4,000,000 cash dividend.On December 31,Martin's stock was trading at $45 per share and Martin reported 2019 net income of $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 53

McGinn Company purchased 10% of RJ Company's common stock during 2019 for $100,000.The 10% investment in RJ had a $90,000 fair value at the end of 2019 and a $105,000 fair value at the end of 2020. Which of the following statements is correct?

A)The 2019 unrealized loss is $10,000,but is not included in McGinn's 2019 net income.
B)The 2020 unrealized gain is $5,000,and is included in McGinn's 2020 net income.
C)The 2020 unrealized gain is $15,000 and is included in McGinn's 2020 net income.
D)The 2019 unrealized loss is $10,000 and is reported on McGinn's balance sheet as a component of stockholders' equity.

Question 54

On July 1,2019,Carter Company purchased equity securities as follows: Dark Corporation common stock (par $1)10,000 shares at $25 per share.
Janin Corporation preferred stock (par $100)2,000 shares at $105 per share.
The quoted market prices per share on December 31,2019 were as follows:
Dark Corporation stock,$27 per share
Janin 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 31,2019 should be

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

Question 55

On July 1,2019,as a long-term investment,Wildlife Supply Company purchased 6,000 of the 18,000 outstanding shares of the nonvoting preferred stock of Nature Company for $30 per share.The records of Nature Company reflect the following: The amount reported on the balance sheet by Wildlife Company for its investment at December 31,2019 would be which of the following?

A)$179,800.
B)$162,000.
C)$182,000.
D)$197,800.

Question 56

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

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

Question 57

Rye Company purchased 15% of Lena Company's common stock during 2019 for $150,000.The Investment in Lena had a $160,000 fair value at the end of 2019 and a $140,000 fair value at the end of 2020.

- Which of the following statements is incorrect?

A)The net $10,000 unrealized loss on the investment is reported on Rye's balance sheet as a component of other comprehensive income.
B)The 2020 unrealized loss is $20,000,and is included in Rye's 2020 net income.
C)The investment is reported at $140,000 on the December 31,2020 balance sheet.
D)The 2019 unrealized gain is $10,000 and is included in Rye's 2019 net income.

Question 58

Rye Company purchased 15% of Lena Company's common stock during 2019 for $150,000.The Investment in Lena had a $160,000 fair value at the end of 2019 and a $140,000 fair value at the end of 2020.Lena Company declared and paid dividends of $36,000 in 2019 and $38,000 in 2020.What is the total amount reported on Rye's income statement for the year ended December 31,2020 related to the Lena investment?

A)$15,700.
B)($14,300).
C)($15,700).
D)$5,700.

Question 59

On January 1,2019,Short Company purchased 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 as a long-term investment.During November 2019,Daniel declared and paid a cash dividend of $1.25 per share.At December 31,2019,end of the accounting period,Daniel's shares were selling at $48.What is the net amount reported in the income statement for the year ended December 31,2019 for Short Company related to this investment?

A)$65,000
B)$25,000
C)($40,000)
D)($15,000)

Question 60

On July 1,2019,Surf Company purchased long-term investments in equity 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 31,2019 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 31,2019 would be which of the following?

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

Question 61

Photo Finish Corporation bought a 40% interest in Click-It Corporation's $1 par value voting common stock on March 31,2019.On December 31,2019,Click-It paid a $1 million cash dividend declared earlier in 2019,and reported net income for the year ended 2019 of $10 million.On December 31,2019,Click-It's stock was trading at $11.50 per share. What effect will the dividend have on the Photo Finish financial statements?

A)It would increase cash and increase equity in investee earnings.
B)It would increase cash and decrease the investment account.
C)It would increase cash and increase net unrealized gains/losses.
D)It would increase cash and increase the investment account.

Question 62

Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation,and Heartfelt accounts for the investment using the equity method.During 2019,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 1,2019.

- How much investment income should Heartfelt report during 2019 from the Candle investment?

A)$36,000.
B)$40,000.
C)$4,000.
D)$10,000.

Question 63

Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation,and Heartfelt accounts for the investment using the equity method.During 2019,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 1,2019.

- At what amount is the Candle investment reported on the December 31,2019 balance sheet of Heartfelt Company?

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

Question 64

Which of the following statements is false with regard to investments and the cash flow statement?

A)Dividends received from stock investments increase cash flows from investing activities.
B)Income from investments accounted for using the equity method does not 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 are not reported as income but are reported as cash flows.

Question 65

On January 1,2019,Calas Company acquired 40% of the outstanding voting common stock of Nick Company as a long-term investment.During 2019,Nick reported net income of $10,000 and declared and paid dividends of $4,000.During 2019,Calas Company should report equity in investee earnings of:

A)$5,600.
B)$4,000.
C)$2,400.
D)$10,000.

Question 66

The use of consolidation 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 67

Photo Finish Corporation bought a 40% interest in Click-It Corporation's $1 par value voting common stock on March 31,2019.On that date,Photo Finish paid $20 million for the 2 million shares at a $10 market price per share.On December 31,2019,Click-It paid a $1 million cash dividend declared earlier in 2019,and reported net income for the year ended 2019 of $10 million.On December 31,2019,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 31,2019 balance sheet?

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

Question 68

On January 1,2019,Palmer,Inc.bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000.Palmer uses the equity method of accounting for this investment.During 2019,Arnold Corporation reported $30,000 of net income and paid a total of $10,000 in cash dividends.At the end of 2019,the shares had a fair value of $150,000.

-At the end of 2019,the shares had a fair value of $150,000.What is the amount of Equity in investee earnings for 2019?

A)$4,000.
B)$12,000.
C)$13,000.
D)$21,000.

Question 69

Which of the following statements is correct with regard to investments and the statement of cash flows?

A)When the equity method is used to account for an investment in an investee company's common stock,the reported share of affiliate net income must be added to net income in the operating activities section of the statement of cash flows.
B)When the equity method is used to account for an investment in an investee company's common stock,the cash dividends received are a cash inflow from investing activities.
C)Any unrealized gains or losses that were reported on the income statement under the fair value method of accounting for investments 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 company's common stock,the reported share of affiliate dividends must be deducted from net income in the operating activities section of the statement of cash flows.

Question 70

On January 1,2019,Turtle Inc.bought 30% of the outstanding shares of Shell Corporation common stock at a cost of $150,000.Turtle uses the equity method of accounting for this investment.During 2019,Shell Corporation reported $40,000 of net income and paid a total of $5,000 in cash dividends.At the end of 2019,the shares had a fair value of $160,000.

-How much investment income will Turtle report for equity in investee earnings during 2019?

A)$12,000.
B)$22,000.
C)$10,500.
D)$1,500.

Question 71

Gilman Company purchased 100,000 of the 250,000 shares of common stock of Burke Corporation on January 1,2019,at $40 per share as a long-term investment.The records of Burke Corporation showed the following on December 31,2019:

- At what amount should Gilman Company report the Burke investment on the December 31,2019 balance sheet?

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

Question 72

On January 1,2019,Palmer,Inc.bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000.Palmer uses the equity method of accounting for this investment.During 2019,Arnold Corporation reported $30,000 of net income and paid a total of $10,000 in cash dividends.At the end of 2019,the shares had a fair value of $150,000.

-At what amount should the Arnold investment be reported at on the December 31,2019 balance sheet of Palmer,Inc.?

A)$150,000.
B)$157,000.
C)$145,000.
D)$163,000.

Question 73

On January 1,2019,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 fair value of SCD's plant and equipment was $100,000 in excess of the equipment's book value.If the fair value and book value are the same for SCD's remaining assets and liabilities,what was the amount of goodwill acquired by Shelley Company?

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

Question 74

Gilman Company purchased 100,000 of the 250,000 shares of common stock of Burke Corporation on January 1,2019,at $40 per share as a long-term investment.The records of Burke Corporation showed the following on December 31,2019:

- How much should Gilman Company report as investment income from the Burke investment during 2019?

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

Question 75

Copper Company purchased 40% of the common stock of York Corporation on January 1,2019,for $2,000,000 as a long-term investment.The records of York Corporation showed the following on December 31,2019: How much investment income should Copper report from the York investment during 2019?

A)$290,000.
B)$108,000.
C)$116,000.
D)$8,000.

Question 76

In which of the following circumstances is the investor most likely to exert significant influence over the operating and financial policies of the investee company?

A)The investor owns 48% of the investee's outstanding nonvoting preferred stock.
B)The investor owns 22% of the investee's outstanding common stock and one other investor owns the other 78%.
C)The investor owns 36% of the investee company's outstanding convertible bonds.
D)The investor owns 19% of the investee's outstanding common stock and has a seat on the investee's board of directors.

Question 77

On January 1,2019,Turtle Inc.bought 30% of the outstanding shares of Shell Corporation common stock at a cost of $150,000.Turtle uses the equity method of accounting for this investment.During 2019,Shell Corporation reported $40,000 of net income and paid a total of $5,000 in cash dividends.At the end of 2019,the shares had a fair value of $160,000.

-What investment balance will be reported on Turtle's December 31,2019 balance sheet?

A)$150,000.
B)$162,000.
C)$160,500.
D)$170,500.

Question 78

When is the equity method not used to account for a long-term investment in common stock?

A)When the investment is 30% of the voting stock and significant influence can be achieved.
B)When the investment is 18% 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 79

JDR Company purchased 40% of the common stock of YRK Corporation on January 1,2019,for $2,000,000 as a long-term investment.The records of YRK Corporation showed the following on December 31,2019: At what amount should JDR report the YRK investment on the December 31,2019 balance sheet?

A)$2,116,000.
B)$2,000,000.
C)$2,096,000.
D)$2,108,000.

Question 80

Fun with Florals Corporation acquired all the voting common stock shares of Crafts-to-Go Corporation under the acquisition method.Crafts-to-Go remains a separate corporation.Which of the following statements about the financial statements is true?

A)The assets and liabilities of Crafts-to-Go Corporation would be not revalued and disclosed at fair value on the date of acquisition.
B)Fun with Florals will use the equity method of accounting for this investment.
C)Fun with Florals will prepare consolidated financial statements.
D)Fun with Florals will use the fair value method of accounting for this investment.