Question 1

Barcelona Company owns 40% interest in the stock of ABX Corporation. During the year, ABX pays $20,000 in dividends to Barcelona, and reports $150,000 in net income. Barcelona Company's investment in ABX will increase by

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The answer of Barcelona Company owns 40% interest in the...

Question 2

The receipt of dividends on an investment affects the Stock Investment account when which of the following methods is used?

Accepted Answer

The receipt of dividends on an investment affects the Stock Investment account when the equity method is used. Under the equity method, dividends received are recorded as a reduction in the investment account and as income on the investor's income statement. Choice A (Cost method) is not affected by dividends as dividends are not recognized until received. Choice C (Combination method) and D (Market method) are not recognized methods of accounting for investments.

Question 3

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

Accepted Answer

According to accounting standards, when an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor has significant influence on the investee. Therefore, the equity method should be used to account for the investment.

Question 4

Under the equity method, the Stock Investments account is increased when the

Accepted Answer

Under the equity method, the investor records its share of the investee's net income as an increase to the Stock Investments account.

Question 5

If a company acquires a 40% common stock interest in another company

Accepted Answer

When a company acquires a 40% common stock interest in another company, it usually has enough influence over the investee to apply the equity method. The equity method recognizes the investment at cost and then adjusts it for the investor's share of the investee's net income or loss. This method reflects the investor's economic interest in the investee and is therefore appropriate in this situation. The cost method (C) is used when the investment does not provide significant influence over the investee, while all influence is classified as controlling (B) when the investor holds more than 50% of the investee's voting stock. Option D is incorrect as the ability to exert significant influence over the activities of the investee does exist in this scenario.

Question 6

The ability of an investing company to affect the operating and financial activities of another company, even though the investor holds less than 50% of the stock, is known as

Accepted Answer

Significant influence refers to the ability to affect the operating and financial activities of another company, even though the investor holds less than 50% of the stock. Control refers to the ability to direct the operating and financial policies of another company, usually through ownership of more than 50% of the voting stock. A combination of significant influence and control may occur if an investor owns between 20% and 50% of the voting stock and has the ability to exercise significant influence over the investee, but not enough to qualify as having control. Therefore, choice A is the best answer.

Question 7

If the cost method is used to account for an investment in common stock

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The answer of If the cost method is used to...

Question 8

On January 1, 2014, Valentine Corporation purchased 25% of the common stock outstanding of Betz Corporation for $100,000. During 2014, Betz Corporation reported net income of $40,000 and paid cash dividends of $24,000. The balance of the Stock Investments-Betz account on the books of Valentine Corporation at December 31, 2014, is

Accepted Answer

Valentine Corporation purchased 25% of Betz Corporation's common stock for $100,000 on January 1, 2014. This indicates that the fair market value (FMV) of the Betz Corporation on that date was $400,000 (= $100,000/0.25).

During 2014, Betz Corporation reported net income of $40,000, out of which Valentine Corporation is entitled to receive 25% ($10,000) as its share.

Betz Corporation paid cash dividends of $24,000, out of which Valentine Corporation is entitled to receive 25% ($6,000) as its share.

Therefore, the balance of the Stock Investments-Betz account on the books of Valentine Corporation at December 31, 2014, is $104,000 (= $100,000 + $10,000 - $6,000).

Question 9

Jambon Company owns 10% interest in the stock of Fanth Corporation. During the year, Fanth pays $8,000 in dividends to Jambon, and reports $200,000 in net income. Jambon Company's investment in Fanth will increase Jambon net income by

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The answer of Jambon Company owns 10% interest in the...

Question 10

Under the equity method of accounting for investments in common stock, when a dividend is received from the investee company

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The answer of Under the equity method of accounting for...

Question 11

Barcelona Company owns 40% interest in the stock of ABX Corporation. During the year, ABX pays $20,000 in dividends to Barcelona, and reports $150,000 in net income. Barcelona Company's investment in ABX will increase Barcelona net income by

Accepted Answer

Since Barcelona owns 40% of ABX, their share of ABX's net income is $60,000 (40% of $150,000). Barcelona also received $20,000 in dividends, which is not factored into the net income. Therefore, the total increase in Barcelona's net income is $80,000 ($60,000 + $20,000).

Question 12

Eglin Company owns 30% interest in the stock of Bosco Corporation. During the year, Rhodes pays $10,000 in dividends to Eglin, and reports a net loss of $250,000. Eglin Company's investment in Bosco will affect Eglin net income by a

Accepted Answer

Since Eglin Company owns only a 30% interest in the stock of Bosco Corporation, they will only recognize 30% of Bosco's net income or loss. Therefore, Eglin Company's share of Bosco's net loss for the year will be $75,000 (30% x $250,000). The dividends received from Bosco do not affect Eglin's share of net income or loss, so the $10,000 in dividends will not have an impact on Eglin's net income. As a result, Eglin Company's investment in Bosco will decrease Eglin's net income by $75,000.

Question 13

The cost method of accounting for investments in stock should be used when the investment is

Accepted Answer

The cost method of accounting for investments in stock should be used when the investment is non-influential and noncontrolling. This method records the investment at the original cost and recognizes revenue only when cash dividends are received.

Question 14

FTX Company owns 10% interest in the stock of Zip Corporation. During the year, Zip pays $4,000 in dividends to FTX, and reports a net loss of $100,000. FTX Company's investment in Zip will affect FTX net income by a

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The answer of FTX Company owns 10% interest in the...

Question 15

Bing Company owns 30% interest in the stock of Yeti Corporation. During the year, Yeti pays $60,000 in dividends to Bing, and reports $320,000 in net income. Bing Company's investment in Yeti l will increase Bing net income by

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The answer of Bing Company owns 30% interest in the...

Question 16

Which of the following is the correct matching concerning the appropriate accounting for long-term stock investments?

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The answer of Which of the following is the correct...

Question 17

On January 1, 2014, the Express Corporation purchased 30% of the common stock outstanding of the Bangor Corporation for $200,000. During 2014, the Bangor Corporation reported net income of $80,000 and paid cash dividends of $20,000. The balance of the Stock Investments-Bangor account on the books of Express Corporation at December 31, 2014, is

Accepted Answer

The initial investment made by Express Corporation was $200,000 for 30% of the common stock outstanding. Since this is an investment in common stock, Express Corporation should use the equity method to account for this investment.

Under the equity method, Express Corporation would record its share of Bangor Corporation's net income and dividends. Their share of net income would be 30% * $80,000 = $24,000. Their share of dividends would be 30% * $20,000 = $6,000.

Therefore, the balance of the Stock Investments-Bangor account on the books of Express Corporation at December 31, 2014 would be the initial investment of $200,000 plus their share of net income of $24,000 minus their share of dividends of $6,000:

$200,000 + $24,000 - $6,000 = $218,000.

Thus, the answer is D.

Question 18

Which of the following is the correct matching concerning an investor's influence on the operations and financial affairs of an investee?

Accepted Answer

The answer of Which of the following is the correct...

Question 19

Chopper Company owns 10% interest in the stock of Elton Corporation. During the year, Elton pays $10,000 in dividends to Chopper, and reports $400,000 in net income. Chopper Company's investment in Elton will increase Chopper net income by

Accepted Answer

The answer of Chopper Company owns 10% interest in the...

Question 20

If a stock investment is sold at a gain, the gain

Accepted Answer

The gain from the sale of a stock investment would be reported in the Other Revenue and Gain section of the income statement. This section includes any gains or losses from the sale of assets that are not part of a company's normal operations.

Quiz 14: Time Value of Money

Barcelona Company owns 40% interest in the stock of ABX Corporation. During the year, ABX pays $20,000 in dividends to Barcelona, and reports $150,000 in net income. Barcelona Company's investment in ABX will increase by

The receipt of dividends on an investment affects the Stock Investment account when which of the following methods is used?

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

Under the equity method, the Stock Investments account is increased when the

If a company acquires a 40% common stock interest in another company

The ability of an investing company to affect the operating and financial activities of another company, even though the investor holds less than 50% of the stock, is known as

If the cost method is used to account for an investment in common stock

Jambon Company owns 10% interest in the stock of Fanth Corporation. During the year, Fanth pays $8,000 in dividends to Jambon, and reports $200,000 in net income. Jambon Company's investment in Fanth will increase Jambon net income by

Under the equity method of accounting for investments in common stock, when a dividend is received from the investee company

Barcelona Company owns 40% interest in the stock of ABX Corporation. During the year, ABX pays $20,000 in dividends to Barcelona, and reports $150,000 in net income. Barcelona Company's investment in ABX will increase Barcelona net income by

Eglin Company owns 30% interest in the stock of Bosco Corporation. During the year, Rhodes pays $10,000 in dividends to Eglin, and reports a net loss of $250,000. Eglin Company's investment in Bosco will affect Eglin net income by a

The cost method of accounting for investments in stock should be used when the investment is

FTX Company owns 10% interest in the stock of Zip Corporation. During the year, Zip pays $4,000 in dividends to FTX, and reports a net loss of $100,000. FTX Company's investment in Zip will affect FTX net income by a

Bing Company owns 30% interest in the stock of Yeti Corporation. During the year, Yeti pays $60,000 in dividends to Bing, and reports $320,000 in net income. Bing Company's investment in Yeti l will increase Bing net income by

Which of the following is the correct matching concerning the appropriate accounting for long-term stock investments?

Which of the following is the correct matching concerning an investor's influence on the operations and financial affairs of an investee?

Chopper Company owns 10% interest in the stock of Elton Corporation. During the year, Elton pays $10,000 in dividends to Chopper, and reports $400,000 in net income. Chopper Company's investment in Elton will increase Chopper net income by

If a stock investment is sold at a gain, the gain