20. All of the following would require use of the equity method for investments
except:
21. All of the following statements regarding the investment account using the
equity method are true except:
22. A company has been using the fair-value method to account for its investment.
The company now has the ability to significantly control the investee and the equity
method has been deemed appropriate. Which of the following statements is true?
23. A company has been using the equity method to account for its investment. The
company sells shares and does not continue to have significant control. Which of the
following statements is true?
24. An investee company incurs an extraordinary loss during the period. The
investor appropriately applies the equity method. Which of the following statements is
true?
25. How should a permanent loss in value of an investment using the equity method
be treated?
26. Under the equity method, when the company’s share of cumulative losses
equals its investment and the company has no obligation or intention to fund such
additional losses, which of the following statements is true?
27. When an investor sells shares of its investee company, which of the following
statements is true?
28. When applying the equity method, how is the excess of cost over book value
accounted for?
29. After allocating cost in excess of book value, which asset or liability would not
be amortized over a useful life?
30. Which statement is true concerning unrealized profits in intra-entity inventory
transfers when an investor uses the equity method?
31. Which statement is true concerning unrealized profits in intra-entity inventory
transfers when an investor uses the equity method?
32. On January 1, 2010, 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 2010, Sacco reported
income of $50,000 and paid dividends of $20,000 while in 2011 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, 2010, is
33. On January 1, 2010, 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 2010, Sacco reported
income of $50,000 and paid dividends of $20,000 while in 2011 it reported income of
$75,000 and dividends of $30,000. Assume Dawson has the ability to significantly
influence the operations of Sacco.
The equity in income of Sacco for 2010, is
34. On January 1, 2010, 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 2010, Sacco reported
income of $50,000 and paid dividends of $20,000 while in 2011 it reported income of
$75,000 and dividends of $30,000. Assume Dawson has the ability to significantly
influence the operations of Sacco.
The equity in income of Sacco for 2011, is
35. On January 1, 2010, 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 2010, Sacco reported
income of $50,000 and paid dividends of $20,000 while in 2011 it reported income of
$75,000 and dividends of $30,000. Assume Dawson has the ability to significantly
influence the operations of Sacco.
The balance in the investment in Sacco account at December 31, 2010, is
36. On January 1, 2010, 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 2010, Sacco reported
income of $50,000 and paid dividends of $20,000 while in 2011 it reported income of
$75,000 and dividends of $30,000. Assume Dawson has the ability to significantly
influence the operations of Sacco.
The balance in the investment in Sacco account at December 31, 2011, is
37. Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2011,
for $105,000 when the book value of Gates was $600,000. During 2011 Gates reported
net income of $150,000 and paid dividends of $50,000. On January 1, 2012, Dodge
purchased an additional 25% of Gates for $200,000. Any excess cost over book value
is attributable to goodwill with an indefinite life. The fair-value method was used
during 2011 but Dodge has deemed it necessary to change to the equity method after
the second purchase. During 2012 Gates reported net income of $200,000 and reported
dividends of $75,000.
The income reported by Dodge for 2011 with regard to the Gates investment is
38. Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2011,
for $105,000 when the book value of Gates was $600,000. During 2011 Gates reported
net income of $150,000 and paid dividends of $50,000. On January 1, 2012, Dodge
purchased an additional 25% of Gates for $200,000. Any excess cost over book value
is attributable to goodwill with an indefinite life. The fair-value method was used
during 2011 but Dodge has deemed it necessary to change to the equity method after
the second purchase. During 2012 Gates reported net income of $200,000 and reported
dividends of $75,000.
The income reported by Dodge for 2012 with regard to the Gates investment is
39. Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2011,
for $105,000 when the book value of Gates was $600,000. During 2011 Gates reported
net income of $150,000 and paid dividends of $50,000. On January 1, 2012, Dodge
purchased an additional 25% of Gates for $200,000. Any excess cost over book value
is attributable to goodwill with an indefinite life. The fair–value method was used
during 2011 but Dodge has deemed it necessary to change to the equity method after
the second purchase. During 2012 Gates reported net income of $200,000 and reported
dividends of $75,000.
Which adjustment would be made to change from the fair-value method to the equity
method?