accounting

Week 3 Homework

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Note: Allowance to Adjust Investment to Market is the same as Securities Fair Value Adjustment Account

1) The Nail Company paid $1,200,000 to purchase 35% of the outstanding stock of the Toe Corporation. Toe Corporation reports $450,000 of net income and paid a cash dividend of $150,000. These three events will increase Nail Company's Investment account from $0 to:

A) $600,000 B) $1,410,000 C) $1,305,000 D) $420,000

2) A controlling interest exists when the investor:

A) owns more than 50% of the investee's voting stock

B) uses the equity method to account for the investment

C) uses the market value method of accounting for the investment

D) owns more than 20% of the investee's voting stock

3) The Allowance to Adjust Investment to Market account has a current debit balance of $850. Available-for-sale investments with a cost of $10,000 have a current market value of $12,300. The adjusting entry will require a:

A) credit to Allowance to Adjust Investment to Market for $3,150

B) credit to Allowance to Adjust Investment to Market for $1,450

C) debit to Allowance to Adjust Investment to Market for $1,450

D) debit to Allowance to Adjust Investment to Market for $2,300

4) The Allowance to Adjust Investment to Market account has a current credit balance of $812. Available-for-sale investments with a cost of $22,000 have a current market value of $22,600. The adjusting entry will require a:

A) debit to Allowance to Adjust Investment to Market for $1,412

B) debit to Allowance to Adjust Investment to Market for $212

C) debit to Allowance to Adjust Investment to Market for $600

D) credit to Allowance to Adjust Investment to Market for $1,412

5) On January 1, 2006, Easy Corporation purchased 30% of the outstanding stock of Hard Corporation for $800,000. Net income reported by Hard Corporation for 2006 was $125,000. Dividends paid by Hard Corporation during 2006 were $75,000. The amount of investment revenue that Easy should recognize for 2006 is:

A) $22,500 B) $60,000 C) $15,000 D) $37,500

6) A gain or loss on the sale of a long-term investment using the equity method is determined by comparing the cash received with the:

A) lower-of-cost-or-market value of the long-term investment

B) market value of the long-term investment

C) cost of the long-term investment

D) cost of the long-term investment adjusted for the investor's share of the investee's net income and cash dividends while the investment was held by the investor company

7) Held-to-maturity investments are reported on the balance sheet at their:

A) par value or stated value B) current market value

C) amortized cost D) historical cost