Question 1

What journal entry will be recorded in 2019 to recognize its share of the intra-entity gross profit that was deferred in 2018?

Accepted Answer

A)  Entry A. 
B)  Entry B. 
C)  Entry C. 
D)  Entry D. 
E)  No entry is necessary. 
A)  Entry A. 
B)  Entry B. 
C)  Entry C. 
D)  Entry D. 
E)  No entry is necessary.

Question 2

What is the balance in the investment account on December 31, 2018?

Accepted Answer

A)  $1,900,000. 
B)  $1,960,000. 
C)  $2,000,000. 
D)  $2,016,000. 
E)  $2,028,000. 
A)  $1,900,000. 
B)  $1,960,000. 
C)  $2,000,000. 
D)  $2,016,000. 
E)  $2,028,000.

Question 3

On Deuce's December 31, 2019 balance sheet, what balance was reported for the Investment in Wiz Co.account?

Accepted Answer

A)  $117,000. 
B)  $143,400. 
C)  $152,000. 
D)  $134,400. 
E)  $141,200. 
A)  $117,000. 
B)  $143,400. 
C)  $152,000. 
D)  $134,400. 
E)  $141,200.

Question 4

What is the balance in Acker's Investment in Howell account at December 31, 2017?

Accepted Answer

A)  $576,000. 
B)  $598,400. 
C)  $614,400. 
D)  $606,000. 
E)  $616,000. 
A)  $576,000. 
B)  $598,400. 
C)  $614,400. 
D)  $606,000. 
E)  $616,000.

Question 5

The amount allocated to goodwill at January 1, 2017, is

Accepted Answer

A)  $25,000. 
B)  $13,000 
C)  $ 9,000. 
D)  $16,000. 
E)  $10,000. 
A)  $25,000. 
B)  $13,000 
C)  $ 9,000. 
D)  $16,000. 
E)  $10,000.

Question 6

What is the investor's share of gross profit on intra-entity inventory sales that should be deferred on December 31, 2019?

Accepted Answer

A)  $1,500. 
B)  $2,400. 
C)  $3,600. 
D)  $4,000. 
E)  $8,000. 
A)  $1,500. 
B)  $2,400. 
C)  $3,600. 
D)  $4,000. 
E)  $8,000.

Question 7

Which statement is true concerning unrecognized profits in intra-entity inventory sales when an investor uses the equity method?

Accepted Answer

A)  The investor and investee make reciprocal entries to defer and recognize inventory profits. 
B)  The same adjustments are made for upstream and downstream sales. 
C)  Different adjustments are made for upstream and downstream sales. 
D)  No adjustments are necessary. 
E)  Adjustments will be made only when profits are known upon sale to outsiders. 
A)  The investor and investee make reciprocal entries to defer and recognize inventory profits. 
B)  The same adjustments are made for upstream and downstream sales. 
C)  Different adjustments are made for upstream and downstream sales. 
D)  No adjustments are necessary. 
E)  Adjustments will be made only when profits are known upon sale to outsiders.

Question 8

What was the balance in the investment account before the shares were sold?

Accepted Answer

A)  $1,560,000. 
B)  $1,600,000. 
C)  $1,700,000. 
D)  $1,800,000. 
E)  $1,860,000. 
A)  $1,560,000. 
B)  $1,600,000. 
C)  $1,700,000. 
D)  $1,800,000. 
E)  $1,860,000.

Question 9

What is the balance in Acker's Investment in Howell account at December 31, 2018?

Accepted Answer

A)  $624,000. 
B)  $636,000. 
C)  $646,000. 
D)  $656,000. 
E)  $666,000. 
A)  $624,000. 
B)  $636,000. 
C)  $646,000. 
D)  $656,000. 
E)  $666,000.

Question 10

During January 2017, Wells, Inc.acquired 30% of the outstanding common stock of Wilton Co.for $1,400,000.This investment gave Wells the ability to exercise significant influence over Wilton.Wilton's assets on that date were recorded at $6,400,000 with liabilities of $3,000,000.Any excess of cost over book value of Wells' investment was attributed to unrecorded patents having a remaining useful life of ten years. In 2017, Wilton reported net income of $600,000.For 2018, Wilton reported net income of $750,000.Dividends of $200,000 were paid in each of these two years.What was the reported balance of Wells' Investment in Wilson Co.at December 31, 2018?

Accepted Answer

A)  $1,609,000. 
B)  $1,485,000. 
C)  $1,685,000. 
D)  $1,647,000. 
E)  $1,054,300. 
A)  $1,609,000. 
B)  $1,485,000. 
C)  $1,685,000. 
D)  $1,647,000. 
E)  $1,054,300.

Question 11

Jager Inc.holds 30% of the outstanding voting shares of Kinson Co.and appropriately applies the equity method of accounting.Amortization associated with this investment equals $11,000 per year.For 2018, Kinson reported earnings of $100,000 and paid cash dividends of $40,000.During 2018, Kinson acquired inventory for $62,400, which was then sold to Jager for $96,000.At the end of 2018, Jager still held some of this inventory at its intra-entity selling price of $50,000.
Required:
Determine the amount of Equity in Investee Income that Jager should have reported for 2018.

Accepted Answer

The answer of Jager Inc.holds 30% of the outstanding voting...

Question 12

Which of the following results in a decrease in the investment account when applying the equity method?

Accepted Answer

A)  Dividends paid by the investor. 
B)  Net income of the investee. 
C)  Net income of the investor. 
D)  Share of gross profit on intra-entity inventory sales for the current year. 
E)  Purchase of additional common stock by the investor during the current year. 
A)  Dividends paid by the investor. 
B)  Net income of the investee. 
C)  Net income of the investor. 
D)  Share of gross profit on intra-entity inventory sales for the current year. 
E)  Purchase of additional common stock by the investor during the current year.

Question 13

What was the balance in the investment account before the shares were sold?

Accepted Answer

A)  $520,000. 
B)  $544,000. 
C)  $560,000. 
D)  $604,000. 
E)  $620,000. 
A)  $520,000. 
B)  $544,000. 
C)  $560,000. 
D)  $604,000. 
E)  $620,000.

Question 14

On January 1, 2016, Dermot Company purchased 15% of the voting common stock of Horne Corp.On January 1, 2018, Dermot purchased 28% of Horne's voting common stock.If Dermot achieves significant influence with this new investment, how must Dermot account for the change to the equity method?

Accepted Answer

A)  It must use the equity method for 2018 but should make no changes in its financial statements for 2017 and 2016. 
B)  It should prepare consolidated financial statements for 2018. 
C)  It must restate the financial statements for 2017 and 2016 as if the equity method had been used for those two years. 
D)  It should record a prior period adjustment at the beginning of 2018 but should not restate the financial statements for 2017 and 2016. 
E)  It must restate the financial statements for 2017 as if the equity method had been used then. 
A)  It must use the equity method for 2018 but should make no changes in its financial statements for 2017 and 2016. 
B)  It should prepare consolidated financial statements for 2018. 
C)  It must restate the financial statements for 2017 and 2016 as if the equity method had been used for those two years. 
D)  It should record a prior period adjustment at the beginning of 2018 but should not restate the financial statements for 2017 and 2016. 
E)  It must restate the financial statements for 2017 as if the equity method had been used then.

Question 15

How much goodwill is associated with this investment?

Accepted Answer

A)  $(500,000.) 
B)  $ 0. 
C)  $ 650,000. 
D)  $1,000,000. 
E)  $2,000,000. 
A)  $(500,000.) 
B)  $ 0. 
C)  $ 650,000. 
D)  $1,000,000. 
E)  $2,000,000.

Question 16

When the fair value option is elected for application to an investment in which the investor has significant influence over the investee, how would the investor reflect the use of the fair value option in its balance sheet and in its income statement?

Accepted Answer

In the balance sheet, the Investment in

Question 17

What is the amount of excess amortization expense for Jackie Corp's investment in Rob Co.for year 2018?

Accepted Answer

A)  $ 0. 
B)  $30,000. 
C)  $40,000. 
D)  $55,000. 
E)  $60,000. 
A)  $ 0. 
B)  $30,000. 
C)  $40,000. 
D)  $55,000. 
E)  $60,000.

Question 18

When an investor appropriately applies the equity method, how should it account for any investee Other Comprehensive Income (OCI)?

Accepted Answer

A)  Under the equity method, the investor only recognizes its share of investee's income from continuing operations. 
B)  The OCI would reduce the investment. 
C)  The OCI would increase the investment. 
D)  The OCI would not appear on the investor's income statement but would be a component of comprehensive income. 
E)  The OCI would be ignored but shown in the investor's notes to the financial statements. 
A)  Under the equity method, the investor only recognizes its share of investee's income from continuing operations. 
B)  The OCI would reduce the investment. 
C)  The OCI would increase the investment. 
D)  The OCI would not appear on the investor's income statement but would be a component of comprehensive income. 
E)  The OCI would be ignored but shown in the investor's notes to the financial statements.

Question 19

The balance in the Investment in Sacco account at December 31, 2018, is

Accepted Answer

A)  $119,500. 
B)  $125,500. 
C)  $116,500. 
D)  $118,000. 
E)  $100,000. 
A)  $119,500. 
B)  $125,500. 
C)  $116,500. 
D)  $118,000. 
E)  $100,000.

Question 20

An upstream sale of inventory is a sale:

Accepted Answer

A)  Between subsidiaries owned by a common parent. 
B)  With the transfer of goods scheduled by contract to occur on a specified future date. 
C)  In which the goods are physically transported by boat from a subsidiary to its parent. 
D)  Made by the investor to the investee. 
E)  Made by the investee to the investor. 
A)  Between subsidiaries owned by a common parent. 
B)  With the transfer of goods scheduled by contract to occur on a specified future date. 
C)  In which the goods are physically transported by boat from a subsidiary to its parent. 
D)  Made by the investor to the investee. 
E)  Made by the investee to the investor.

Exam 1: The Equity Method of Accounting for Investments

What journal entry will be recorded in 2019 to recognize its share of the intra-entity gross profit that was deferred in 2018?

What is the balance in the investment account on December 31, 2018?

On Deuce's December 31, 2019 balance sheet, what balance was reported for the Investment in Wiz Co.account?

What is the balance in Acker's Investment in Howell account at December 31, 2017?

The amount allocated to goodwill at January 1, 2017, is

What is the investor's share of gross profit on intra-entity inventory sales that should be deferred on December 31, 2019?

Which statement is true concerning unrecognized profits in intra-entity inventory sales when an investor uses the equity method?

What was the balance in the investment account before the shares were sold?

What is the balance in Acker's Investment in Howell account at December 31, 2018?

Which of the following results in a decrease in the investment account when applying the equity method?

What was the balance in the investment account before the shares were sold?

On January 1, 2016, Dermot Company purchased 15% of the voting common stock of Horne Corp.On January 1, 2018, Dermot purchased 28% of Horne's voting common stock.If Dermot achieves significant influence with this new investment, how must Dermot account for the change to the equity method?

How much goodwill is associated with this investment?

When the fair value option is elected for application to an investment in which the investor has significant influence over the investee, how would the investor reflect the use of the fair value option in its balance sheet and in its income statement?

What is the amount of excess amortization expense for Jackie Corp's investment in Rob Co.for year 2018?

When an investor appropriately applies the equity method, how should it account for any investee Other Comprehensive Income (OCI)?

The balance in the Investment in Sacco account at December 31, 2018, is

An upstream sale of inventory is a sale:

A: the Equity Method of Accounting for Investments

Consolidation of Financial Information

A: Consolidation of Financial Information

Consolidations - Subsequent to the Date of Acquisition

A: Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

A: Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements Intra-Entity Asset Transactions

A: Consolidated Financial Statements Intra-Entity Asset Transactions

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

A: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Consolidated Financial Statements - Ownership Patterns and Income Taxes

A: Consolidated Financial Statements - Ownership Patterns and Income Taxes

Segment and Interim Reporting

A: Segment and Interim Reporting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

A: Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

A: Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Accounting Standards

A: Worldwide Accounting Diversity and International Accounting Standards

Financial Reporting and the Securities and Exchange Commission

A: Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

A: Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operation

A: Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

A: Partnerships: Termination and Liquidation

Accounting for State and Local Governments, Part I

A: Accounting for State and Local Governments, Part I

Accounting for State and Local Governments, Part II

A: Accounting for State and Local Governments, Part II

Accounting for Not-For-Profit Entities

A: Accounting for Not-For-Profit Entities

Accounting for Estates and Trusts

A: Accounting for Estates and Trusts

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