Exam 1: A: the Equity Method of Accounting for Investments

A company has been using the fair-value method to account for its investment.The company now has the ability to significantly influence the investee and the equity method has been deemed appropriate.Which of the following statements is true?

What was the balance in the investment account at December 31, 2018?

What is the balance in Cayman's Investment in Maya account at December 31, 2018?

How would a change be made from the fair value method to the equity method of accounting for investments?

What is the Equity in Howell Income that should be reported by Acker in 2017?

What amount of gross profit on 2017 intra-entity sales should Steven defer at December 31, 2017?

How much of Cook's net income did Mehan report for the year 2019?

Luffman Inc.owns 30% of Bruce Inc.and appropriately applies the equity method.During the current year, Bruce bought inventory costing $52,000 and then sold it to Luffman for $80,000.At year-end, all of the merchandise had been sold by Luffman to other customers.What amount of gross profit on intra-entity sales must be deferred by Luffman?

What was the balance in the investment account at April 1, 2019 just before the sale of shares?

What is Acker's share of the intra-entity inventory gross profit that should be deferred on December 31, 2018?

What is the balance in the investment account after the sale of the 15,000 shares?

Pursley, Inc.acquires 10% of Ritz Corporation on January 3, 2017, for $80,000 when the book value of Ritz was $800,000.Pursley adjusted the investment to its fair value of $162,500 at December 31, 2017.During 2017 Ritz reported net income of $125,000 and paid dividends of $30,000.On January 10, 2018, Pursley purchased an additional 20% of Ritz for $325,000, giving Pursley the ability to significantly influence the operating policies of Ritz.Any excess of cost over book value is attributable to goodwill with an indefinite life.What journal entry(ies) is(are) required on January 1, 2018?

What amount of gross profit on 2018 intra-entity sales should Steven defer at December 31, 2018?

How does the use of the equity method affect the investor's financial statements?

How much income did Mehan report from Cook during 2017?

The income reported by Dodge for 2017 with regard to the Gates investment is

On January 1, 2018, Spark Corp.acquired a 40% interest in Cranston Inc.for $250,000.On that date, Cranston's balance sheet disclosed net assets of $430,000.During 2018, Cranston reported net income of $100,000 and paid cash dividends of $30,000.Spark sold inventory costing $40,000 to Cranston during 2018 for $50,000.Cranston used all of this merchandise in its operations during 2018.Any excess cost over fair value is attributable to an unamortized trademark with a 20-year remaining life. Required: Prepare all of Spark's journal entries for 2018 to apply the equity method to this investment.

Charlie Co.owns 30% of the voting common stock of Turf Services Inc.Charlie uses the equity method to account for its investment.On January 1, 2018, the balance in the investment account was $624,000.During 2018, Turf Services reported net income of $120,000 and paid dividends of $30,000.Any excess of fair value over book value is attributable to goodwill with an indefinite life. What is the balance in the investment account as of December 31, 2018?

What is Acker's share of the intra-entity inventory gross profit that should be deferred on December 31, 2017?

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?