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For Each of the Following Numbered Situations Below, Select the Best

Question 121

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For each of the following numbered situations below, select the best letter answer concerning accounting for investments:

Premises:
Dividends received from 10% investee.
Change from fair-value method to equity method. Prior income was less than dividends.
Change from fair-value method to equity method. Prior income exceeded dividends.
Purchase of additional shares of investee.
Income reported by 40% owned investee.
Income reported by 10% owned investee.
Loss reported by 40% owned investee.
Loss reported by 10% investee.
Change from equity method to fair-value method. Prior income exceeded dividends.
Dividends received from 40% investee.
Unrealized ending intra-entity inventory profits using the equity method.
Change from equity method to fair-value method. Prior income was less than dividends.
Responses:
Decrease the investment account.
Increase the investment account.
Increase dividend revenue.
No adjustment necessary.

Correct Answer:

Dividends received from 10% investee.
Change from fair-value method to equity method. Prior income was less than dividends.
Change from fair-value method to equity method. Prior income exceeded dividends.
Purchase of additional shares of investee.
Income reported by 40% owned investee.
Income reported by 10% owned investee.
Loss reported by 40% owned investee.
Loss reported by 10% investee.
Change from equity method to fair-value method. Prior income exceeded dividends.
Dividends received from 40% investee.
Unrealized ending intra-entity inventory profits using the equity method.
Change from equity method to fair-value method. Prior income was less than dividends.
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