11) The adjusting entry for investments contains a credit to Investments for $651. The income statement will reflect:
A) revenue of $651
B) an extraordinary gain of $651
C) other comprehensive income/loss of ($651)
D) nothing, because gain/loss is not reported on the income statement
12) Investments accounted for using the equity method are initially recorded at:
A) fair market value of the investee company multiplied by the percentage of ownership acquired
B) the total of the investee's equity accounts multiplied by the percentage of ownership acquired
C) cost
D) the lower of the cost or fair market value as of the balance sheet date
13) The investor should generally use the equity method of accounting for the investee if the investor owns what percentage of the outstanding stock of the investee?
A) 0%-15%
B) 20%-50%
C) any percentage greater than 50%
D) any percentage greater than 60%
14) Under the equity method of accounting, the investor will:
A) reduce the Investment account for investee dividends and increase the Investment account to record investee income
B) increase the Investment account to record dividends and income of the investee
C) reduce the Investment account to record dividends and income of the investee
D) increase the Investment account for investee dividends, and reduce the Investment account to record investee income
15) If an investor company owns between 20% and 50% of the common shares of another business, cash dividends received from the investee company are generally recorded by the investor company by:
A) increasing the value of the investor's Investment account
B) increasing the Dividend Revenue account
C) decreasing the value of the investor's Investment account
D) decreasing the investor company's Common Shares account
16) The equity method of accounting for a stock investment should generally be used when the investor owns 20%-50% of the investee's stock, because that level of stock ownership:
A) usually indicates a plan to acquire a controlling interest of the investee company
B) requires the investor to notify the government of any plans to acquire a controlling interest in the investee company
C) means the investor has a controlling interest in the investee company
D) gives the investor significant influence over the investee company
17) Power Generation Corp. owns 38% of Electric Limited. Net income for Electric Limited for the year ending December 31, 2010, is $450,000. The journal entry prepared by Power Generation Corp. on December 31, 2010, includes a:
A) debit to Cash for $171,000
B) credit to Long-Term Investment for $171,000
C) debit to Long-Term Investment for $450,000
D) debit to Long-Term Investment for $171,000
18) Under the equity method of accounting for investments, dividends paid by the investee are recorded by the investor as:
A) a credit to Dividend Revenue of the investor company
B) a debit to the Investment account of the investor company
C) a credit to the Investment account of the investor company
D) no entry is made to record dividends in this accounting situation
19) A gain or loss on sale of a long-term investment using the equity method is determined by comparing the cash received with the:
A) cost of the long-term investment
B) market value of the long-term investment
C) 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
D) lower-of-cost-or-market value of the long-term investment
20) Brighton Beach Limited owns 40% of Alberta Based Inc. Total cash dividends paid by Alberta Based Inc. for the year ending December 31, 2010, amount to $47,919. The journal entry prepared by Brighton Beach Limited on December 31, 2010, includes a:
A) debit to Cash for $47,918
B) credit to Dividend Revenue for $19,168
C) credit to Long-Term Investment for $19,168
D) debit to Long-Term Investment for $19,168