江西财经大学高级财务会计国际学院题库chapter_02

1Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHallAdvancedAccounting,11e(Beams/Anthony/Bettinghaus/Smith)Chapter2StockInvestments—InvestorAccountingandReportingMultipleChoiceQuestions1)Whatmethodofaccountingwillgenerallybeusedwhenonecompanypurchaseslessthan20%oftheoutstandingstockofanothercompany?A)Onlythefairvaluemethodmaybeused.B)Onlytheequitymethodmaybeused.C)Eitherthefairvaluemethodortheequitymethodmaybeused,dependingupontherelationshipbetweenthecompanies.D)Neitherthefairvaluemethodnortheequitymethodmaybeused,regardlessofthelevelofownership.Answer:CObjective:LO1Difficulty:Easy2)Whatmethodofaccountingwillgenerallybeusedwhenonecompanypurchasesbetween20%to50%oftheoutstandingstockofanothercompany?A)Onlythefairvaluemethodmaybeused.B)Onlytheequitymethodmaybeused.C)Eitherthefairvaluemethodortheequitymethodmaybeused,dependingupontherelationshipbetweenthecompanies.D)Neitherthefairvaluemethodnortheequitymethodmaybeused,regardlessofthelevelofownership.Answer:CObjective:LO1Difficulty:Easy3)Whichoneofthefollowingitems,originallyrecordedintheInvestmentinFalconCo.accountundertheequitymethod,wouldnotbesystematicallyusedtoreduceinvestmentincomeonaperiodicbasis?A)AmortizationexpenseofgoodwillB)DepreciationexpenseontheexcessfairvalueattributedtomachineryC)AmortizationexpenseontheexcessfairvalueattributedtoleaseagreementsD)Interestexpenseontheexcessfairvalueattributedtolong-termbondspayableAnswer:AObjective:LO5Difficulty:Moderate2Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHall4)Whichoneofthefollowingstatementsiscorrectforaninvestorcompany?A)ThebalanceintheInvestmentinOspreyCo.accountcanbereducedtorepresentadeclineinthefairmarketvalueoftheinvestment,butwillnotbeadjustedifthefairmarketvalueincreases.B)Undertheequitymethod,thebalanceintheInvestmentinOspreyCo.accountcanbenegativeiftheinvesteecorporationoperatesataloss.C)OncethebalanceintheInvestmentinOspreyCo.isreducedtozero,itwillnotbereducedanyfurther.D)Undertheequitymethod,thebalanceintheInvestmentinOspreyCo.accountwillincreasewhencashdividendsarereceived.Answer:CObjective:LO2Difficulty:Moderate5)PinkertonInc.owns10%ofSableCompany.Inthemostrecentyear,Sablehadnetearningsof$40,000andpaiddividendsof$6,000.Pinkerton'saccountantmistakenlyassumedPinkertonhadconsiderableinfluenceoverSableandusedtheequitymethodinsteadofthecostmethod.Whatistheimpactontheinvestmentaccountandnetearnings,respectively?A)Byusingtheequitymethod,theaccountanthasunderstatedtheinvestmentaccountandoverstatedthenetearnings.B)Byusingtheequitymethod,theaccountanthasoverstatedtheinvestmentaccountandunderstatedthenetearnings.C)Byusingtheequitymethod,theaccountanthasunderstatedtheinvestmentaccountandunderstatedthenetearnings.D)Byusingtheequitymethod,theaccountanthasoverstatedtheinvestmentaccountandoverstatedthenetearnings.Answer:DObjective:LO3Difficulty:Moderate6)GriffonIncorporatedholdsa30%ownershipinDuckCorporation.Griffonshouldusetheequitymethodunderwhichofthefollowingcircumstances?A)GriffonhassurrenderedsignificantstockholderrightsbyagreementbetweenGriffonandDuck.B)GriffonhasbeenunabletosecureapositionontheDuckCorporation'sBoardofDirectors.C)Griffonhasinadequateoruntimelyinformationtoapplytheequitymethod.D)TheownershipofDuckCorporationisdiverse.Answer:DObjective:LO1Difficulty:Easy7)PondCorporationusesthefairvaluemethodofaccountingforitsinvestmentinSwanCompany.WhichoneofthefollowingeventswouldaffecttheInvestmentinSwanCo.account?A)InvesteelossesB)InvesteedividendpaymentsC)Anincreaseintheinvestee'ssharepricefromlastperiodD)AlloftheabovewouldaffecttheInvestmentinSwanCo.account.Answer:CObjective:LO2Difficulty:Easy3Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHall8)SadieCorporation'sstockholders'equityatDecember31,2010includedthefollowing:6%Preferredstock,$10parvalue$1,000,000Commonstock,$1parvalue10,000,000Otherpaid-incapital—common4,000,000Retainedearnings4,000,000$19,000,000PilgaCorporationpurchaseda30%interestinSadie'scommonstockfromothershareholdersonJanuary1,2011for$5,800,000.WhatwasthebookvalueofPilga'sinvestmentinSadieonJanuary1,2011?A)$5,400,000B)$5,700,000C)$7,120,000D)$7,440,000Answer:AExplanation:A)Totalstockholders'equity$19,000,000Less:preferredequity(1,000,000)Equals:commonequity18,000,000xPilga'spercentage×30%BookvalueofPilgainvestment$5,400,000Objective:LO5Difficulty:Moderate9)JabiruCorporationpurchaseda20%interestinFishCompanycommonstockonJanuary1,2008for$300,000.ThisinvestmentwasaccountedforusingthecompleteequitymethodandthecorrectbalanceintheInvestmentinFishaccountonDecember31,2010was$440,000.Theoriginalexcesspurchasetransactionincluded$60,000forapatentamortizedatarateof$6,000peryear.In2011,FishCorporationhadnetincomeof$4,000permonthearneduniformlythroughouttheyearandpaid$20,000ofdividendsinMay.IfJabirusoldone-halfofitsinvestmentinFishonAugust1,2011for$500,000,howmuchgainwasrecognizedonthistransaction?A)$278,950B)$280,000C)$280,950D)$282,000Answer:CExplanation:C)Dec31,2010investmentbalance$440,000Jabiru'sinterestinFish'sincomefromJan1-July31:($4,000×7months×20%)=5,6