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Exam 14: Reporting and Interpreting Investments in Other Corporations

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Question 21

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On January 1,2019,Sheldon Company paid $750,000 cash for 100% of the outstanding common stock of Mullen Company;Mullen's book value of assets minus liabilities on the date of acquisition was $550,000.The current fair value of Mullen's net assets was $70,000 in excess of their book value.What was the amount of goodwill acquired by Sheldon Company?

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

E) B) and D)
F) B) and C)

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Question 22

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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.

E) C) and D)
F) A) and B)

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Question 23

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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?

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?

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?

On December 31,2019,Jean World Corporation recorded the following journal entry relating to its investment in 9,000 shares of common stock of Soda Corporation. At the end of 2019,Soda Corporation reported net income of $120,000. Earlier in the year,Soda declared and paid dividends of $18,000. A.What method is being used to account for this investment? B.What is the total number of shares outstanding of Soda's common stock?

On January 1,2019,as a long-term investment,John Company purchased 1,000 of the 10,000 outstanding voting common shares of Wayne Corporation at $9 per share.Wayne reported 2019 net income of $30,000 and declared and paid cash dividends of $20,000.The market price of the Wayne stock at the end of 2019 was $10 per share.Calculate the carrying value of John's investment at the end of 2019.

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.

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

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

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:

Miller Corp.purchased $1,000,000 of bonds at 95 when the market yield was 10%.The bonds pay interest at the rate of 8%.Miller intends to hold these bonds to maturity and will not need to sell the bonds before that date.Which of the following statements is false?

How is goodwill accounted for subsequent to acquisition?

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.

Which of the following accounts is only created as the result of acquiring a controlling interest in another company?

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

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?

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

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?

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?