Grading Summary
These are the automatically computed
results of your exam. Grades for essay
questions, and comments from your
instructor, are in the “Details” section
below.
Date Taken: 2/2/2013
Time Spent: 2 h , 02 min , 49 secs
Points Received: 129 / 150 (86%)
Question Type: # Of Questions: # Correct:
Multiple Choice 14 11
Essay 3 N/A
Grade Details – All Questions
Page
: 1 2
1. Question :
(TCO A) All of the following would require use of the equity method for
investments except
Student Answer:
Material inter-company transactions
Investor participation in the policy-making process of the investee
Valuation at fair value (ch 1, pg 6)
Technological dependency
Significant control
Points Received: 7 of 7
Comments:
2. Question :
(TCO A) Gaw Company owns 15% of the common stock of Trace
Corporation and used the fair-value method to account for this
investment. Trace reported net income of $110,000 for 2008 and paid
dividends of $60,000 on October 1, 2008.
How much income should Gaw recognize on this investment in 2008?
Student Answer:
$16,500
$9,000 (ch. 1, pg. 2)
-2146323020 MultipleChoice 2 True
0 -2146323020 MultipleChoice 2
$25,500
$7,500
$50,000
Instructor Explanation: 15% x $90,000
Points Received: 7 of 7
Comments:
3. Question :
(TCO A) Club Co. appropriately uses the equity method to account for
its investment in Chip Corp. As of the end of 2008, Chip’s common
stock had suffered a significant decline in fair value, which is expected
to be recovered over the next several months. How should Club
account for the decline in value?
Student Answer:
Club should switch to the fair-value method
No accounting because the decline in fair value is temporary (ch 1,
pg 11)
Club should decrease the balance in the investment account to the
current value and recognize a loss on the income statement
Club should not record its share of Chip’s 2008 earnings until the
decline in the fair value of the stock has been recovered
Club should decrease the balance in the investment account to the
current value and recognize an unrealized loss on the balance sheet
Points Received: 7 of 7
Comments:
4. Question :
(TCO A) Which of the following results in a decrease in the Equity in
Investee Income account when applying the equity method?
Student Answer:
Dividends paid by the investor
-2146323019 MultipleChoice 6 True
0 -2146323019 MultipleChoice 6
-2146323018 MultipleChoice 8 True
0 -2146323018 MultipleChoice 8
Net income of the investee
Unrealized gain on inter-company inventory transfers for the
current year (@ ch 1, pg 17-20)
Unrealized gain on inter-company inventory transfers for the prior
year
Extraordinary gain of the investee
Points Received: 7 of 7
Comments:
5. Question :
(TCO A) On January 1, 2008, Dawson, Incorporated, paid $100,000 for
a 30% interest in Sacco Corporation. This investee had assets with a
book value of $550,000 and liabilities of $300,000. A patent held by
Sacco having a book value of $10,000 was actually worth $40,000 with
a six year remaining life. Any goodwill associated with this acquisition is
considered to have an indefinite life. During 2008, Sacco reported
income of $50,000 and paid dividends of $20,000 while in 2009 it
reported income of $75,000 and dividends of $30,000.
Assume Dawson has the ability to significantly influence the operations
of Sacco. The amount allocated to goodwill at January 1, 2008 is
Student Answer:
$25,000
$13,000
$9,000
$16,000 (ch 1, pg 13)
$10,000
Instructor
Explanation: Net book value = $250K + $30K – bring patent to fair value = $280K x
30% = $84,000. Paid $100,000, so goodwill is difference of $16,000.
Points Received: 7 of 7
Comments:
-2146323017 MultipleChoice 10 True
0 -2146323017 MultipleChoice 10
-2146323016 MultipleChoice 13 True
0 -2146323016 MultipleChoice 13
6. Question :
(TCO B) Which of the following statements is true regarding a statutory
merger?
Student Answer:
The original companies dissolve while remaining as separate
divisions of a newly created company
Both companies remain in existence as legal corporations with one
corporation now a subsidiary of the acquiring company
The acquired company dissolves as a separate corporation and
becomes a division of the acquiring company (ch 2, pg 42)
The acquiring company acquires the stock of the acquired
company as an investment
A statutory merger is no longer a legal option
Points Received: 0 of 7
Comments:
-2146323015 MultipleChoice 15 False
