ACCT 405 Chapter 1 Problems: 1 3 5 9 10
11
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ACCT 405 Chapter 1 Problems: 1 3 5 9 10 11
Advanced Accounting
ACCT-405-14613 Chapter 1 Problems: 1 3 5 9 10 11
1. When an investor uses the equity method to
account for investments in common stock, cash dividends received by the
investor from the investee should be recorded as
1. A deduction from the investor’s share of the
investee’s profits.
2. Dividend income.
3. A deduction from the stockholders’ equity
account, Dividends to Stockholders.
4. A deduction from the investment account.
(AICPA adapted)
3. Sisk Company has owned 10 percent of Maust,
Inc., for the past several years. This ownership did not allow Sisk to have
significant influence over Maust. Recently, Sisk acquired an additional 30
percent of Maust and now will use the equity method. How will the investor
report this change?
1. A cumulative effect of an accounting change is
shown in the current income statement.
2. No change is recorded; the equity method is
used from the date of the new acquisition.
3. A retrospective adjustment is made to restate
all prior years presented using the equity method.
4. Sisk will report the change as a component of
accumulated other comprehensive income.
5. When an investor elects the fair-value option
for a significant influence investment, cash dividends received by the investor
from the investee should be recorded as
1. A deduction from the investor’s share of the
investee’s reported income.
2. A deduction from the investment account.
3. A reduction from accumulated other
comprehensive income reported in stockholders’ equity.
4. Dividend income.
9. Goldman Company reports net income of $140,000
each year and pays an annual cash dividend of $50,000. The company holds net
assets of $1,200,000 on January 1, 2012. On that date, Wallace purchases 40
percent of the outstanding stock for $600,000, which gives it the ability to
significantly influence Goldman. At the purchase date, the excess of Wallace’s
cost over its proportionate share of Goldman’s book value was assigned to
goodwill. On December 31, 2014, what is the Investment in Goldman Company
balance (equity method) in Wallace’s financial records?
1. $600,000.
2. $660,000.
3. $690,000.
4. $708,000.
|
Cost of stock
|
600000
|
|
|
2012
|
Income accrued
|
56000
|
|
2012
|
Dividend collected
|
-20000
|
|
2013
|
Income accrued
|
56000
|
|
2013
|
Dividend collected
|
-20000
|
|
2014
|
Income accrued
|
56000
|
|
2014
|
Dividend collected
|
-20000
|
|
Investment in
Goldman
|
708000
|
|
10. Perez, Inc., applies the equity method for its
25 percent investment in Senior, Inc. During 2013, Perez sold goods with a 40
percent gross profit to Senior. Senior sold all of these goods in 2013. How
should Perez report the effect of the intra-entity sale on its 2013 income
statement?
11. Sales and cost of goods sold should be reduced
by the amount of intra-entity sales.
12. Sales and cost of goods sold should be reduced
by 25 percent of the amount of intra-entity sales.
13. Investment income should be reduced by 25
percent of the gross profit on the amount of intra-entity sales.
14. No adjustment is necessary.
11. Panner, Inc., owns 30 percent of Watkins and
applies the equity method. During the current year, Panner buys inventory
costing $54,000 and then sells it to Watkins for $90,000. At the end of the
year, Watkins still holds only $20,000 of merchandise. What amount of
unrealized gross profit must Panner defer in reporting this investment using
the equity method?
