Exam 12: Reporting and Interpreting Investments in Other Corporations

Rye Company purchased 15% of Lena Company's common stock during 2010 for $150,000.The 15% investment in Lena had a $160,000 fair value at the end of 2010 and a $140,000 fair value at the end of 2011.Which of the following statements is correct if Rye classifies the investment as a trading security and sold it at the beginning of 2012 for $148,000?

How is goodwill accounted for subsequent to acquisition?

During 2010,the following items were reported on The Mickey Company's statement of cash flows in millions of dollars.For each item,identify the type of activity it is (operating,investing,financing)and the effect it would have on cash flows (added or deducted). Equity in the income of investees 372 Proceeds from the sale of investments 14 Purchases of investments 67

Which of the following is the best description of investments in trading securities?

Investments in bonds intended to be sold before they reach maturity should be reported under the market value method.

On January 1,2010,Calas Company acquired 40% of the outstanding voting stock of Nick Company as a long-term investment.During 2010,Nick reported net income of $10,000 and declared and paid dividends of $4,000.During 2010,Calas Company should report "Income from investee earnings" of

On January 1,2010,Turtle Inc.bought 30% of the outstanding shares of Shell Corporation at a cost of $150,000.The equity method of accounting for this investment is used.During 2010,Shell Corporation reported $40,000 of net income and paid $5,000 in cash dividends.At the end of 2010,the shares had a market value of $160,000.How much investment income will Turtle report from the Shell investment during 2010?

An investment accounted for under the equity method would record a reduction in the investment account for the proportionate share of the investee's reported net loss.

On January 1,2010,Sheldon Company paid $750,000 cash for 100% of the outstanding common stock of Mullen Company; Mullen's stockholders equity on the date of acquisition was $550,000.The current market value of Mullen's net assets was $70,000 in excess of their book value.What was the amount of goodwill purchased by Sheldon Company?

On December 31,2010,Jean World Corporation recorded the following journal entry relating to its investment in 9,000 shares of common stock of Soda Corporation. 12/31/2010: $\quad$ Long-term investment in common stock $\quad 54,000$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Equity in investee earnings $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad 54,000$ At the end of 2010,Soda Corporation reported net income of $120,000.Earlier in the year,Soda declared and paid dividends of $18,000. A.What method is being used to account for this investment? B.What is the total number of shares outstanding of Soda's common stock?

Held-to-maturity bond investments have to be reported on the balance sheet at fair value.

On January 1,2010,Entertainment Company acquired 15% of the outstanding voting stock of Rocker Company as a long-term investment in available-for-sale securities.During 2010,Rocker Company reported net income of $1,500,000 and dividends declared and paid of $250,000.How much income will be reported during 2010 from the Rocker investment?

Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock which constitutes 10% of Martin's voting stock on June 30,2010 for $42 per share.Phillips' intent is to keep these shares beyond the current year.On December 20,2010,Martin paid a $4,000,000 cash dividend.On December 31,Martin's stock was trading at $45 per share and their reported 2010 net income was $52 million.What method of accounting will Phillips use to account for this investment?

Rye Company purchased 15% of Lena Company's common stock during 2010 for $150,000.The 15% investment in Lena had a $160,000 fair value at the end of 2010 and a $140,000 fair value at the end of 2011.Which of the following statements is correct if Rye classifies the investment as a trading security?

When accounting for investments in trading securities,any decline in market value below cost of the investments is reported in which of the following ways?

On January 1,2010,Turtle Inc.bought 30% of the outstanding shares of Shell Corporation at a cost of $150,000.The equity method of accounting for this investment is used.During 2010,Shell Corporation reported $40,000 of net income and paid $5,000 in cash dividends.At the end of 2010,the shares had a market value of $160,000.What investment balance will be reported on Turtle's December 31,2010 balance sheet?

The balance sheet of Mini Company was as follows immediately before it was acquired by Maxi Company: Cash \ 90,000 Accounts receivable (net) 50,000 Inventory 150,000 Plant and equipment (net) 100,000 Total Assets \ 390,000 Accounts payable \ 40,000 Notes payable 80,000 Common stock 155,000 Retained earnings 115,000 Total Liabilities and Stockholders' Equity \ 390,000 On January 1,2010,Maxi Company paid $350,000 in cash for 100% of the outstanding common stock of Mini Company.The current market value of Mini Company's plant and equipment was $140,000 on the date of acquisition.If the market value and book value are the same for Mini's remaining assets,what was the amount of goodwill purchased by Maxi Company?

Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation,accounted for using the equity method.During 2010,Candle Corporation reported net income of $100,000 and declared and paid cash dividends of $10,000.The carrying value of the Candle investment was $500,000 on January 1,2010.At what amount is the Candle investment reported on the December 31,2010 balance sheet?

Photo Finish Corporation bought a 40% interest in the voting stock of Click It Corporation's $1 par value common stock for $20 million (2 million shares at a $10 market price)on March 31,2011.On December 31,2011,Click It paid a $1 million cash dividend declared earlier in 2011 and reported net income for the year ended 2011 of $10 million.On December 31,2011,Click It's stock was trading at $11.50 per share.At what amount will the Click It investment be reported on Photo Finish's December 31,2011 balance sheet?

On January 1,2010,Palmer,Inc.bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000.The equity method of accounting for this investment is used.During 2010,Arnold Corporation reported $30,000 of net income and paid $10,000 in cash dividends.At the end of 2010,the shares had a market value of $150,000.How much income will Palmer report from the Arnold investment during 2010?