Advanced Accounting Quiz

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Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2011 and paid dividends of $60,000 on October 1, 2011. How much income should Gaw recognize on this investment in 2011? Choose one answer.

a. $9,000.

b. $16,500.

c. $7,500.

d. $50,000.

e. $25,500.
Correct
Marks for this submission: 1/1.
Question 2
Marks: 1
An upstream sale of inventory is a sale:
Choose one answer.

a. with the transfer of goods scheduled by contract to occur on a specified future date.
b. between subsidiaries owned by a common parent.

c. made by the investor to the investee.

d. made by the investee to the investor.

e. in which the goods are physically transported by boat from a subsidiary to its parent. Correct
Marks for this submission: 1/1.
Question 3
Marks: 1
All of the following statements regarding the investment account using the equity method are true except: Choose one answer.

a. Net income of investee increases the investment account.
b. Dividends received reduce the investment account.

c. Dividends received are reported as revenue.

d. The investment is recorded at cost.

e. Amortization of fair value over cost reduces the investment account. Correct
Marks for this submission: 1/1.
Question 4
Marks: 1
An investee company incurs an extraordinary loss during the period. The investor appropriately applies the equity method. Which of the following statements is true? Choose one answer.

a. The extraordinary loss would reduce the value of the investment.
b. The extraordinary loss should increase equity in investee income.
c. The extraordinary loss would not appear on the income statement but would be a component of comprehensive income.
d. The loss would be ignored but shown in the investor's notes to the financial statements.
e. Under the equity method, the investor only recognizes its share of investee's income from continuing operations. Correct
Marks for this submission: 1/1.
Question 5
Marks: 1
When an investor sells shares of its investee company, which of the following statements is true? Choose one answer.

a. Any gain or loss is reported as part as comprehensive income.
b. A realized gain or loss is reported as the difference between selling price and carrying value.
c. An unrealized gain or loss is reported as the difference between selling price and original cost.
d. A realized gain or loss is reported as the difference between selling price and original cost.
e. An unrealized gain or loss is reported as the difference between selling price and carrying value. Correct
Marks for this submission: 1/1.
Question 6
Marks: 1
Which statement is true concerning unrealized profits in intra-entity inventory transfers when an investor uses the equity method? Choose one answer.

a. The investee must defer upstream beginning inventory profits.
b. The investor must defer downstream ending inventory profits.
c. The investor must defer downstream beginning inventory profits.
d. The investor must defer upstream beginning inventory profits.
e. The investee must defer upstream ending inventory profits. Correct
Marks for this submission: 1/1.
Question 7
Marks: 1
On January 1, 2010, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2010, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2011 it reported income of $75,000 and dividends of $30,000. Assume Dawson has the ability to...
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