Company A should always use the equity method to account for its investment in C

Question

Company   A should always use the equity method to account for its investment in Company B if a) Company A has the ability to exercise significant   influence over the operating policies of Company B. b) Company A owns 30% of Company B's stock c) Company A made the investment primarily to earn a   return on excess cash d) Company A does not have the ability to exercise   significant influence over the operating policies of Company B. Smith   Company owns 15% of the common stock of Wesson Corporation and used the   fair value method to account for this investment.  Wesson reported net income of   $110,000 for 2013 and paid dividends of $60,000 on October 1, 2013.  How much income should   Smith Company recognize on this Investment in 2013? a) $16,500 b) $9,000 c) $25,000 d) $7,500 e) $50,000 If Black Company   acquired White Company and achieved control, how would the land accounts of   White and Black be combined? a) Book value of Black would be   combined with the book value of White b) Book value of Black would be   combined with the fair value of White c) Fair value of Black would be   combined with the fair value of White d) Fair value of Black would be   combined with the book value of While e) Cost of Black would be combined with   the cost of While Using the   acquisition method for a business combination, goodwill is generally defined as a) Cost of the investment minus the subsidiary's book   value at the beginning of the year b) Cost of the investment minus the   subsidiary's fair value at the beginning of the year c) Cost of the investment minus the   subsidiary's fair value at the acquisition date d) Cost of the purchase consideration   minus the subsidiary's fair value at end of the year Bloomberg Company   acquired 100% of BusinessWeek Company on January 1, 2009 at a price in   excess of the subsidiary's fair value.   On that date, Bloomberg's equipment (10-year   life) had a book value of $360,000 but a fair value of $480,000. BusinessWeek had   equipment (10-year life) with a book value of $240,000 and a fair value of   $350,000.  Bloomberg used the partial   equity to record its investment in BusinessWeek.  On December 31, 2011, Bloomberg had   equipment with a book value of $250,000 and a   fair value of $400,000.  BusinessWeek   had equipment with a book value of $170,000   and a fair value of $320,000.  What was   the consolidated balance for the   Equipment account as of December 31, 2011? a) $387,000 b) $497,000 c) $508,000 d) $537,000 e) $570,000 Sugar   Company acquired 100% of Spice Company on January 1, 2011. Sugar paid $1,000   excess consideration over book value which is being amortized at $20 per   year. Spice   Company reported net income of $400 in 2011 and paid dividends of $100. Assume the   equity method is applied. How much will Sugar Company's income or decrease as   a result of Spice Company's operations in 2011? a) $400 increase b) $300 increase c) $380 increase d) $280 increase e) $480 increase Assume that   K-Mart acquired Sears on a date other than the first day of the fiscal year. When K-Mart   is consolidating Sears, which of the following statements is true in the presentation   of consolidated financial statements? a)Preacquisition   earnings are deducted from consolidated revenues and expenses b) Preacquisiton earnings are added to   consolidated revenues and expenses c) Preacquisition earnings are deducted   from the beginning consolidated stockholders' equity d) Preacquisiton earnings are added to   the beginning consolidated stockholders' equity e) Preacquisition earnings are ignored   in the consolidated income statement When   S-Mart  acquired 75% of the common   stock of Kears Corporation, Kears owned land   with a book value of $70,000 and a fair value of $100,000.  What is the amount of   excess land allocation attributed to the controlling interest at the   acquisition date? a) $0 b) $30,000 c) $35,000 d) $22,500 e) $17,500 Jaison   Company sells inventory to its parent, Oliver Company, at a profit during   2010.   One-third   (1/3) of the inventory is sold by Oliver in 2010.  In the consolidation work- sheet for   2010, which of the following choices would be a debit entry to eliminate the intra-entity   transfer of inventory? a) Retained Earnings b) Cost of Goods Sold c) Inventory d) Investment in Jaison Company e) Sales Which of the   following statements is TRUE concerning an intra-entity transfer of a depreciable   asset? a) Non-controlling Interest [NCI] in   subsidiary's net income is never affected by a gain on the transfer b) NCI in subsidiary's net income is   always affected by a gain on the transfer c) NCI in subsidiary's net income is   affected only when the transfer is upstream d) NCI in subsidiary's net income is   increased by an upstream gain in the year of transfer. Company   A should always use the equity method to account for its investment in Company B if a) Company A has the ability to exercise significant   influence over the operating policies of Company B. b) Company A owns 30% of Company B's stock c) Company A made the investment primarily to earn a   return on excess cash d) Company A does not have the ability to exercise   significant influence over the operating policies of Company B. Smith   Company owns 15% of the common stock of Wesson Corporation and used the   fair value method to account for this investment.  Wesson reported net income of   $110,000 for 2013 and paid dividends of $60,000 on October 1, 2013.  How much income should   Smith Company recognize on this Investment in 2013? a) $16,500 b) $9,000 c) $25,000 d) $7,500 e) $50,000 If Black Company   acquired White Company and achieved control, how would the land accounts of   White and Black be combined? a) Book value of Black would be   combined with the book value of White b) Book value of Black would be   combined with the fair value of White c) Fair value of Black would be   combined with the fair value of White d) Fair value of Black would be   combined with the book value of While e) Cost of Black would be combined with   the cost of While Using the   acquisition method for a business combination, goodwill is generally defined as a) Cost of the investment minus the subsidiary's book   value at the beginning of the year b) Cost of the investment minus the   subsidiary's fair value at the beginning of the year c) Cost of the investment minus the   subsidiary's fair value at the acquisition date d) Cost of the purchase consideration   minus the subsidiary's fair value at end of the year Bloomberg Company   acquired 100% of BusinessWeek Company on January 1, 2009 at a price in   excess of the subsidiary's fair value.   On that date, Bloomberg's equipment (10-year   life) had a book value of $360,000 but a fair value of $480,000. BusinessWeek had   equipment (10-year life) with a book value of $240,000 and a fair value of   $350,000.  Bloomberg used the partial   equity to record its investment in BusinessWeek.  On December 31, 2011, Bloomberg had   equipment with a book value of $250,000 and a   fair value of $400,000.  BusinessWeek   had equipment with a book value of $170,000   and a fair value of $320,000.  What was   the consolidated balance for the   Equipment account as of December 31, 2011? a) $387,000 b) $497,000 c) $508,000 d) $537,000 e) $570,000 Sugar   Company acquired 100% of Spice Company on January 1, 2011. Sugar paid $1,000   excess consideration over book value which is being amortized at $20 per   year. Spice   Company reported net income of $400 in 2011 and paid dividends of $100. Assume the   equity method is applied. How much will Sugar Company's income or decrease as   a result of Spice Company's operations in 2011? a) $400 increase b) $300 increase c) $380 increase d) $280 increase e) $480 increase Assume that   K-Mart acquired Sears on a date other than the first day of the fiscal year. When K-Mart   is consolidating Sears, which of the following statements is true in the presentation   of consolidated financial statements? a)Preacquisition   earnings are deducted from consolidated revenues and expenses b) Preacquisiton earnings are added to   consolidated revenues and expenses c) Preacquisition earnings are deducted   from the beginning consolidated stockholders' equity d) Preacquisiton earnings are added to   the beginning consolidated stockholders' equity e) Preacquisition earnings are ignored   in the consolidated income statement When   S-Mart  acquired 75% of the common   stock of Kears Corporation, Kears owned land   with a book value of $70,000 and a fair value of $100,000.  What is the amount of   excess land allocation attributed to the controlling interest at the   acquisition date? a) $0 b) $30,000 c) $35,000 d) $22,500 e) $17,500 Jaison   Company sells inventory to its parent, Oliver Company, at a profit during   2010.   One-third   (1/3) of the inventory is sold by Oliver in 2010.  In the consolidation work- sheet for   2010, which of the following choices would be a debit entry to eliminate the intra-entity   transfer of inventory? a) Retained Earnings b) Cost of Goods Sold c) Inventory d) Investment in Jaison Company e) Sales Which of the   following statements is TRUE concerning an intra-entity transfer of a depreciable   asset? a) Non-controlling Interest [NCI] in   subsidiary's net income is never affected by a gain on the transfer b) NCI in subsidiary's net income is   always affected by a gain on the transfer c) NCI in subsidiary's net income is   affected only when the transfer is upstream d) NCI in subsidiary's net income is   increased by an upstream gain in the year of transfer.

Explanation / Answer

When S-Mart acquired 75% of the common stock of Kears Corporation, Kears owned land with a book value of $70,000 and a fair value of $100,000. What is the amount of excess land allocation attributed to the controlling interest at the acquisition date? b) $30,000

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