• Document: Chapter 2 Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential Multiple Choice Questions 1. If Push Company owned 51 percent of the outs...
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Chapter 2 - Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential Chapter 2 Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential Multiple Choice Questions 1. If Push Company owned 51 percent of the outstanding common stock of Shove Company, which reporting method would be appropriate? A. Cost method B. Consolidation C. Equity method D. Merger method Answer: B Learning Objective: 02-01 Topic: Accounting for Investments in Common Stock Blooms: Remember AACSB: Reflective Thinking AICPA: FN Reporting Difficulty: 1 Easy 2. Usually, an investment of 20 to 50 percent in another company's voting stock is reported under the: A. Cost method B. Equity method C. Full consolidation method D. Fair value method Answer: B Learning Objective: 02-01 Topic: Accounting for Investments in Common Stock Blooms: Remember AACSB: Reflective Thinking AICPA: FN Reporting Difficulty: 1 Easy 2-1 Chapter 2 - Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 3. From an investor's point of view, a liquidating dividend from an investee is: A. A dividend declared by the investee in excess of its earnings in the current year. B. A dividend declared by the investee in excess of its earnings since acquisition by the investor. C. Any dividend declared by the investee since acquisition. D. A dividend declared by the investee in excess of the investee's retained earnings. Answer: B Learning Objective: 02-02 Topic: The Cost Method Blooms: Remember AACSB: Reflective Thinking AICPA: FN Decision Making Difficulty: 1 Easy 4. Which of the following observations is NOT consistent with the cost method of accounting? A. Investee dividends from earnings since acquisition by investor are treated as a reduction of the investment. B. Investments are carried by the investor at historical cost. C. No journal entry is made regarding the earnings of the investee. D. It is consistent with the treatment normally accorded noncurrent assets. Answer: A Learning Objective: 02-02 Topic: The Cost Method Blooms: Remember AACSB: Reflective Thinking AICPA: FN Decision Making Difficulty: 1 Easy 2-2 Chapter 2 - Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 5. On January 1, 20X9 Athlon Company acquired 30 percent of the common stock of Opteron Corporation, at underlying book value. For the same year, Opteron reported net income of $55,000, which includes an extraordinary gain of 40,000. It did not pay any dividends during the year. By what amount would Athlon's investment in Opteron Corporation increase for the year, if Athlon used the equity method? A. $0 B. $16,500 C. $4,500 D. $12,000 Answer: B Learning Objective: 02-03 Learning Objective: Appendix 2A Topic: The Equity Method Topic: Investor’s Share of Other Comprehensive Income Blooms: Understand AACSB: Analytic AICPA: FN Measurement Difficulty: 2 Medium The following data applies to Questions 6 - 8: On January 1, 20X8, William Company acquired 30 percent of eGate Company's common stock, at underlying book value of $100,000. eGate has 100,000 shares of $2 par value, 5 percent cumulative preferred stock outstanding. No dividends are in arrears. eGate reported net income of $150,000 for 20X8 and paid total dividends of $72,000. William uses the equity method to account for this investment. 6. Based on the preceding information, what amount would William Company receive as dividends from eGate for the year? A. $62,000 B. $21,600 C. $18,600 D. $54,000 Answer: C Learning Objective: 02-03 Learning Objective: Appendix 2A Topic: The Equity Method Topic: Additional Requirements of ASC 323-10 Blooms: Apply AACSB: Analytic AICPA: FN Measurement Difficulty: 3 Hard 2-3 Chapter 2 - Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 7. Based on the preceding information, what amount of investment income will William Company report from its investment in eGate for the year? A. $45,000 B. $42,000 C. $62,000 D. $35,000 Answer: B Learning Objective: 02-03 Learning Objective: Appendix 2A Topic: The Equity Method Topic: Additional Requirements of ASC 323-10 Blooms: Apply AACSB: Analytic AICPA: FN Measurement Difficulty: 3 Hard 8. Based on the preceding information, what amount would be reported by William Company as the balance in its investment account on December 31, 20X8? A. $100,000 B. $123,400 C. $120,400 D. $142,000 Answer: B Learning Objective: 02-03 Learning Objective: Appendix 2A Topic: The Equity Method Topic: Additional Requirements of ASC 323-10 Blooms: Apply AACSB: Analytic AICPA: FN Measurement Difficulty: 3 Hard The following data applies to Questions 9 – 11: On January 1, 20X4, Timber Company acquired 25% of Johnson Compan

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