Exam 16: Intercorporate Equity Investments

Which of the following criteria is applicable with respect to determining when a variable interest entity (VIE)must be consolidated into the sponsoring firm's financial statements?

When an investor owns less than 20 percent of the investee company,the investor may still be able to exert influence over the investee company if the other stock is

Foreign currency nonmonetary assets and liabilities for non-free-standing subsidiaries are translated using the

The Collins Company paid $1,050,000 to purchase 70% of Revsine Company's outstanding common stock on July 1,2015.Revsine's balance sheet on the acquisition date reported net assets totaling $1,200,000.Revsine's land had a fair value which was $175,000 greater than book value,while the inventory's fair value exceeded its book value by $67,500.Immediately after the acquisition of the Revsine stock,Collins reported net assets of $5,785,000. Required: 1.Determine the consolidated net assets total as of July 1,2015 using the acquisition method of accounting. 2.Determine the amount of noncontrolling interest to be reported on the July 1,2015 balance sheet.How is the noncontrolling interest reported within the consolidated balance sheet? Assume that the acquisition method of accounting is applicable.

Foreign currency nonmonetary assets and liabilities for non-free-standing subsidiaries are translated using the current exchange rate at the balance sheet date.

On January 1, 2015, Ramsey Company purchased 35% of the outstanding common shares of the Vapor Company for $70,000 when the net assets were $200,000. During 2015, Vapor Company earned $80,000 and declared a dividend of $40,000. Ramsey accounted for the investment using the equity method. -Ramsey's share of Vapor's income for 2015 is

The unrealized gain from an investment classified as available-for-sale reduces net income.

When using the acquisition method to account for a business combination,the subsidiary's assets and liabilities are reported on the consolidated balance sheet at their fair values regardless of the level of ownership attributable to the minority shareholders.

On January 1, 2015, the Regal Company purchased 30% of the outstanding voting stock of the Air Corporation for $300,000; the book value of Air's net assets at the date of purchase was $900,000. Regal was willing to pay more than the book value of the acquired shares because Air's depreciable assets with a ten-year remaining life were undervalued. Regal uses straight-line depreciation. During 2015, Air reported net income of $75,000 and paid dividends of $30,000. -The income reported by Regal during 2015 pertaining to the Air investment was

Mesquite,Inc.has held-to-maturity debt securities it purchased in 2014.At December 31,2015,the amortized cost basis of the securities is $220,000 and the fair value of the securities is $208,000.The present value of estimated future cash flows discounted at the original effective interest rate is $210,000.Mesquite,Inc.uses IFRS for its external reporting.What amount of loss,if any,will Mesquite,Inc.report related to these securities for 2015?

Monetary assets that arise from foreign currency transactions are shown in the financial statements at their dollar equivalent using the exchange rate in effect at the financial statement date.

Equity or debt securities designated by the investor intended to be held for a short period of time are usually classified as

Under the Exposure Draft issued by the FASB (based on joint deliberations with IASB),debt instruments held for collection of contractual cash flows will be reported at amortized cost.

The market value of the Lite stock investment at the end of 2015 was $210,000.Which of the following amounts are correct assuming that Como elected to use the fair value option to account for the Lite investment?

Under the fair value method of accounting for equity investments,unrealized gains and losses as well as dividends received from the investee are reported in the investor's income statement.

Central Investments bought 4,000 shares of Benet Company common stock on January 1, 2015, for $20,000, and 4,000 shares of Roy Company common on July 1, 2015, for $24,000. Benet declared dividends on December 31, 2015 of $3,000. At the end of 2015, the market value of Roy was $30,000 and the market value of Benet was $28,000. At the end of 2016, the market value of Roy was $32,000 and the market value of Benet was $24,000. The stocks were considered to be held for their long-term investment potential. Central owns 8% of Benet Company and 12% of Roy Company. -The 2016 year-end adjustment resulted in

If a parent owns less than 100% of a subsidiary's stock,the noncontrolling shareholders represent the minority interest.

When an investor is capable of influencing the investee company's dividend policy,the investor is able to augment its own reported income when using

Minority ownership occurs when a corporate investor owns less than which of the following percentages of the stock of another company?

The upward or downward adjustment to reflect fair value of trading securities is a direct debit or credit to a market adjustment account.