Exam 17: Understanding Corporate Annual Reports: Basic Financial Statements

Presented below are the balance sheets of Monty Company and Hall Company at January 1, 20X6: On January 1, 20X6, Monty Company acquired 100% of the outstanding common stock of Hall Company for $260 in cash. _ is the balance of the Investment in Hall Stock on the consolidated balance sheet immediately after the acquisition of Hall's stock.

Company B has 40,000 shares of its common stock outstanding. Company A owns 15,000 shares of Company B stock. Company A should use to account for its investment in Company B.

All other things being equal, a higher current ratio indicates that:

A subsidiary is a company that owns more than 50% of another business's stock.

Trading securities are investments where there is no intention to sell in the near future.

The following information pertains to Barnum Company: Balance Sheet At D ecember $31,20 \times 2$ Current assets \ 18,700 Current liabilities \ 7,600 Long-term assets Long- term liabilities 13,250 Stockholders' eauity 27,550 Total assets \ 8400 Total liabilities and s.e. \ 48,400 Barnum Company Income Statement For the Year Ended December 31, 20X2 Sales \ 106,950 Less: Cost of goods sold (61,800) Gross profit \ 45,150 Less: Operating expenses Operatingincome \ 13,450 Less other expenses: interest (1,300) Income before taxes \ 12,150 Less: Income tax expense Net income \ 7,300 There were 1,000 shares of common stock outstanding with a market value of $75 as of December 31, 20X2. Dividends declared and paid was $5 per share. The current ratio for 20X2 is:

Hawkeye Company began the current year with 1,000 units in ending inventory valued at $6.00 per unit. During the year, no inventory was purchased. The company sold for cash 920 units at $7.80 per unit. The replacement cost of the inventory was $6.80 per unit. At the beginning of the year, the general price level index was 100. At the end of the year, the general price level index was 110. Required: Compute the ending inventory and any holding gains on the unsold units using: 1. historical cost/nominal dollars 2. current cost/nominal dollars 3. historical cost/current dollars 4. current cost/constant dollars

Income / invested capital

If a company uses the equity method to account for long- term equity investments, the company recognizes income from the investee when the investee pays a dividend.

Sales / average total assets

The Investments in Affiliates account appears on the consolidated balance sheet of the subsidiary company.

Company B has 40,000 shares of its common stock outstanding. Company A owns 5,000 shares of Company B stock. Company A should use to account for its investment in Company B.

Net income less dividends in preferred stock (if any) / average common shares outstanding

Fisher Company acquired 80% of the outstanding shares of Gibbs Company for $152 in cash. The net income was $100 and $20 for Fisher Company and Gibbs Company, respectively. None of the income resulted from intercompany sales. The net income on the consolidated income statement is:

Goodwill is recognized when:

Under the equity method, the investor recognizes as income:

The investor's method of accounting for long- term equity securities depends on the ability of the investor to influence the operations of the investee.

Market price per share of common stock / earnings per share

The method of accounting for investments in equity securities that shows the investment on the balance sheet at market value

are profitability ratios.