Question 1

Table 16-3
On January 2, 2017, Harper Corporation purchased 40% of the outstanding shares of Martin Corporation for $800,000. Net income reported by Martin Corporation for 2017 and 2018 was, respectively, $100,000 and $125,000. Dividends paid by Martin Corporation during 2017 and 2018 were, respectively, $60,000 and $75,000. Harper Corporation has representation on the Martin corporation board of directors.
-Referring to Table 16-3,the investment in common shares account will appear on Harper Corporation's December 31,2018,balance sheet at:

Accepted Answer

B) $816,000 + (0.40 × ($125,000 - $75,000)) = $836,000

Question 2

Roth Corporation used the equity method to report the following transactions for the years 2017 and 2018:
2017
 Feb. 2 Purchased $ 40 \% $ of the voting common shares of Dunn Enterprises Inc. for $ \$ 500,000 $. This is a long-term investment giving Roth Corporation significant influence over the operations of Dunn Enterprises Inc. $\text { Oct. } 15 \text { Received } \$ 20,000 \text { cash dividends on Dunn Enterprises Inc. common shares. }$ Dec. 31 Dunn Enterprises Inc, reported total income of $ \$ 190,000 $ for the year ended December 31,2017 2018
 Jun. 30 Dunn Enterprises Inc, reported total income of $ \$ 40,000 $ for the six months ended Iune 30, 2018 $30 \text { Sold one-half of the Dunn Enterprises Inc. shares for } \$ 275,000$ Prepare journal entries to record the above transactions.

Accepted Answer

The answer of Roth Corporation used the equity method to...

Question 3

Table 16-9
On January 2, 2017, Didek Corporation purchased 30% of the outstanding shares of Sim Corporation for $500,000. Net income reported by Sim Corporation for 2017 and 2018 was, respectively, $90,000 and $130,000. Dividends paid by Sim Corporation during 2017 and 2018 were, respectively, $30,000 and $45,000. Didek Corporation has representation on the Sim corporation board of directors.
-Refer to Table 16-9.The journal entry to record the 2017 net income of the investee will include:

Accepted Answer

C) 90,000 ? 0.30 = 27,000

Question 4

Table 16-9
On January 2, 2017, Didek Corporation purchased 30% of the outstanding shares of Sim Corporation for $500,000. Net income reported by Sim Corporation for 2017 and 2018 was, respectively, $90,000 and $130,000. Dividends paid by Sim Corporation during 2017 and 2018 were, respectively, $30,000 and $45,000. Didek Corporation has representation on the Sim corporation board of directors.
-Refer to Table 16-9.The journal entry to record the 2017 dividends from the investee will include:

Accepted Answer

CDidek Corporation owns 30% of Sim Corporation, so it would receive 30% of the dividends paid. In 2017, Sim paid $30,000 in dividends, of which Didek's share is 30%, or $9,000. This results in a debit to cash for $9,000 (reflecting the increase in Didek's cash) and a credit to Dividend Revenue for $9,000 (reflecting the income earned from the investment).

Question 5

A controlling interest is one where the investor:

Accepted Answer

A controlling interest is generally considered to be a situation where the investor owns more than 50% of the voting shares of the investee. This gives the investor the ability to exercise significant influence over the investee's operations and strategic decisions.

Question 6

When the equity method is used to account for a share investment,dividends received are recorded as a reduction to the investment account and the investor's share of income reported by the investee is treated as an increase in the investment account.Explain why this is done.

Accepted Answer

The answer of When the equity method is used to...

Question 7

All of the following are reasons for investing in subsidiaries,except:

Accepted Answer

Investing in subsidiaries does not necessarily create one legal entity, but rather creates separate legal entities. The other options (B, C, D) are all valid reasons for investing in subsidiaries.

Question 8

On January 2,2017,Black Corporation paid $350,000 to purchase 30% of the outstanding voting shares of White Corporation.The equity method is used to account for the investment because Black exercises significant influence over White.The following data relate to this investment:
2017
• $20,000 in White Corporation dividends were received by Black Corporation.
• $290,000 of income was reported by White Corporation.
• Current market value of White Corporation investment at the end of the year was $365,000.
2018
• $30,000 in White Corporation dividends were received by Black Corporation.
• $320,000 of income was reported by White Corporation.
• Current market value of White Corporation investment at the end of the year was $430,000.
2019
• The investment was sold on January 3,2019,for $430,000.
a_What was the balance in the investment account at the end of 2017 and 2018?
b_What entry was made to record the sale of the investment on January 3,2019?

Accepted Answer

The answer of On January 2,2017,Black Corporation paid $350,000 to...

Question 9

An investor will use the ________ method to account for a joint venture.

Accepted Answer

The answer of An investor will use the ________ method...

Question 10

Joint ventures are common in ________ endeavours.

Accepted Answer

Joint ventures are often formed to share the risks and costs associated with risky endeavours.

Question 11

When an investor owns 20% to 50% of the voting shares of an investee and has significant influence,the investee is referred to as a(n):

Accepted Answer

When an investor owns 20% to 50% of the voting shares of an investee and has significant influence, the investee is referred to as an affiliated company. This means that the investor has the ability to participate in the financial and operating policy decisions of the investee, but does not have full control over them.

Question 12

Eastern Corporation purchased 225,000 Western Corporation common shares on January 2,2017,for $540,000.Western Corporation has 600,000 shares outstanding.Western Corporation earned net income of $360,000 and paid dividends of $100,000 during 2017.
a_What method should be used to account for the Western Corporation investment?
b_How much revenue will be recorded by Eastern Corporation in 2017 from its investment in Western Corporation?
c_What is the balance in Eastern Corporation's investment account at the end of 2017?
d_Assume all of the above facts except that on January 2,2017,Eastern Corporation purchased 90,000 shares of Western Corporation.How much revenue will be recorded by Eastern Corporation in 2017 from its investment in Western Corporation?

Accepted Answer

The answer of Eastern Corporation purchased 225,000 Western Corporation common...

Question 13

Table 16-9
On January 2, 2017, Didek Corporation purchased 30% of the outstanding shares of Sim Corporation for $500,000. Net income reported by Sim Corporation for 2017 and 2018 was, respectively, $90,000 and $130,000. Dividends paid by Sim Corporation during 2017 and 2018 were, respectively, $30,000 and $45,000. Didek Corporation has representation on the Sim corporation board of directors.
-Referring to Table 16-9,assume on December 31,2018,Didek Corporation sells its investment in Sim Corporation for $440,000.Didek Corporation will report a:

Accepted Answer

To calculate the gain or loss on the sale of an investment, we need to compare the selling price to the carrying value of the investment.

Carrying value of investment as of Dec 31, 2018:
- Cost of investment on Jan 2, 2017: $500,000
- Share of net income (2017-2018): 30% x ($90,000 + $130,000) = $72,000
- Share of dividends (2017-2018): 30% x ($30,000 + $45,000) = $22,500
- Adjusted carrying value: $500,000 + $72,000 - $22,500 = $549,500

Since the selling price of the investment is $440,000, Didek Corporation will report a loss on sale of investment of $103,500 ($549,500 - $440,000 = $103,500). Therefore, the correct answer is B.

Question 14

Table 16-3
On January 2, 2017, Harper Corporation purchased 40% of the outstanding shares of Martin Corporation for $800,000. Net income reported by Martin Corporation for 2017 and 2018 was, respectively, $100,000 and $125,000. Dividends paid by Martin Corporation during 2017 and 2018 were, respectively, $60,000 and $75,000. Harper Corporation has representation on the Martin corporation board of directors.
-Referring to Table 16-3,assume on December 31,2018,Harper Corporation sells 50% of its investment in Martin Corporation for $525,000.Harper Corporation will report a:

Accepted Answer

Harper Corporation initially invested $800,000 to acquire 40% of Martin Corporation. This implies that the fair value of Martin Corporation is $2,000,000 (=$800,000 ÷ 40%).

At the end of 2018, Harper Corporation sold 50% of its investment for $525,000. This implies that the fair value of Harper Corporation's total investment in Martin Corporation at the end of 2018 was $1,050,000 (=$525,000 ÷ 50%).

The carrying value of Harper Corporation's investment at the end of 2018 (after recognizing its share of Martin Corporation's net income and dividends) is $740,000 (=$800,000 + $100,000 - $60,000 + $125,000 - $75,000).

Therefore, Harper Corporation will recognize a gain on the sale of its investment of $310,000 (=$1,050,000 - $740,000). However, this gain should be allocated between the proportion sold and the proportion retained. Since Harper Corporation only sold 50% of its investment, it should recognize a gain of $155,000 (=$310,000 × 50%).

Finally, the amount Harper Corporation received on the sale of its investment ($525,000) exceeds the carrying value of the investment at the date of sale ($400,000 = 50% of $800,000). Therefore, Harper Corporation will recognize an additional gain on the sale of investment of $80,000 (=$525,000 - $400,000).

Overall, Harper Corporation will report a gain on the sale of investment of $235,000 (=$155,000 + $80,000).

Question 15

Identify the appropriate accounting method for each of the following situations involving investments in common shares AND justify your choice:
a_Purchase 10% and plan to sell in three months' time
b_Purchase of more than 55% of investee's shares to control their long term strategy
c_Purchase of 33% interest to share ownership with two other companies in a risky endeavour in a developing country
d_Purchase of 40% interest in a company to significantly influence their product development

Accepted Answer

The answer of Identify the appropriate accounting method for each...

Question 16

Sky Corporation engaged in several transactions involving a long-term investment in Lift Corporation.The equity method is used to account for this investment because Sky exercises significant influence over Lift.
a_On Jan 1,Sky Corporation purchased 3,000 common shares of Lift Corporation
 $\text { for } \$ 12 \text { per share. This represents } 20 \% \text { ownership of Lift Corporation. }$ b_On March 31,Lift Corporation pays a $1.75 per share dividend to all common shareholders.
c_On December 31,the market price of Lift Corporation shares is $12.50 per share.
d_On December 31,Lift Corporation reported net income of $80,000.
Prepare journal entries for the above transactions.

Accepted Answer

The answer of Sky Corporation engaged in several transactions involving...

Question 17

SVZF Incorporated has a 20% interest in a joint venture.SVZF has buildings of $560,000 and the joint venture has buildings of $430,000.SVZF would report buildings on its consolidated financial statements as:

Accepted Answer

D) 560,000 + (430,000 ? 0.20)

Question 18

When an investor owns more than 50% of the voting shares of an investee,the investee is referred to as a(n):

Accepted Answer

According to accounting standards, when an investor owns more than 50% of the voting shares of an investee, the investor has control over the investee. In this case, the investee is considered a subsidiary of the investor. The subsidiary will be consolidated with the parent company's financial statements. Therefore, option A is the correct answer. options B and C are not accurate descriptions of the relationship between the investor and the investee, while option D refers to the consolidated financial statements, which is a result of owning a subsidiary, not the term used for the investee itself.

Question 19

Table 16-9
On January 2, 2017, Didek Corporation purchased 30% of the outstanding shares of Sim Corporation for $500,000. Net income reported by Sim Corporation for 2017 and 2018 was, respectively, $90,000 and $130,000. Dividends paid by Sim Corporation during 2017 and 2018 were, respectively, $30,000 and $45,000. Didek Corporation has representation on the Sim corporation board of directors.
-Referring to Table 16-9,the investment in common shares account will appear on Didek Corporation's December 31,2018,balance sheet at:

Accepted Answer

B) $518,000 + (0.30 × ($130,000 - $45,000)) = $543,500

Question 20

Table 16-9
On January 2, 2017, Didek Corporation purchased 30% of the outstanding shares of Sim Corporation for $500,000. Net income reported by Sim Corporation for 2017 and 2018 was, respectively, $90,000 and $130,000. Dividends paid by Sim Corporation during 2017 and 2018 were, respectively, $30,000 and $45,000. Didek Corporation has representation on the Sim corporation board of directors.
-Refer to Table 16-9.The investment in common shares account will appear on Didek Corporation's December 31,2017,balance sheet at:

Accepted Answer

B) $500,000 + (0.30 × ($90,000 - $30,000)) = $518,000

Quiz 5: Investments and International Operations