21) When using the equity method to account for long-term investments, an adjusting entry is made on the date of the balance sheet:
A) only if market exceeds cost
B) only if market is below cost
C) if the investee stock has fallen below or risen above its cost to the investor
D) no adjusting entry is made if the investee stock has fallen below or risen above its cost to the investor
22) Retail Energy Corporation paid $1,300,000 on January 1, 2011, to purchase 32% of the outstanding shares of Natural Gas Limited. If this investment is accounted for using the equity method of accounting, and Natural Gas Limited reports $450,000 of net income in 2011, the following entry will be made on the books of Retail Energy Corporation:
A) income of $144,000 will be recorded
B) the Investment account will be increased by $416,000
C) the Investment account will be increased by $144,000
D) the Investment account will be decreased by $144,000
23) Companies with investments accounted for by the equity method often refer to the investee as a(n):
A) affiliated company
B) wholly-owned company
C) subsidiary company
D) trading partner
24) Barking Power Company accounts for its 35% investment in Pipeline Corporation under the equity method of accounting. The investment was made on January 1, 2010, at a cost of $625,000. Pipeline Corporation reported net income of $85,000 for the year ended December 31, 2010, and paid total dividends of $20,000 during 2010. On December 31, 2010, after making all appropriate entries, the balance in Barking Power Company's Long-Term Investment account will equal:
A) $647,750
B) $602,250
C) $583,000
D) $690,000
25) On January 1, 2010, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2010 and 2011 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2010 and 2011 were, respectively, $60,000 and $75,000. The long-term investment will appear on TXU Europe Corporation's December 31, 2010, balance sheet at:
A) $776,000
B) $840,000
C) $800,000
D) $816,000
26) On January 1, 2010, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2010 and 2011 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2010 and 2011 were, respectively, $60,000 and $75,000. The long-term investment will appear on TXU Europe Corporation's December 31, 2011, balance sheet at:
A) $746,000
B) $864,000
C) $836,000
D) $890,000
27) On January 1, 2010, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2010 and 2011 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2010 and 2011 were, respectively, $60,000 and $75,000. Assume on December 31, 2011, TXU Europe Corporation sells 50% of its investment in Alberta Power Pool Corporation for $525,000. TXU Europe Corporation will report a:
A) gain on sale of investment of $107,000
B) gain on sale of investment of $80,000
C) loss on sale of investment of $152,000
D) loss on sale of investment of $321,000
28) In 2011, Gigajoule Corporation used the equity method to account for a 25% ownership interest in Megawatt Corporation. If Megawatt Corporation reports $400,000 of income and pays $80,000 of dividends in 2011, the net effect of the entries made by Gigajoule Corporation in 2011 will be to:
A) reduce the Investment account by $320,000
B) reduce the Investment account by $80,000
C) increase the Investment account by $320,000
D) increase the Investment account by $80,000
29) An investor company with a 40% interest in an investee properly used the equity method to account for the investment. If the entries to the Investment account for the current year showed a debit of $45,000 and a credit of $22,000, the investee must have paid total dividends of:
A) $55,000
B) $22,000
C) $45,000
D) $100,000
30) Goodwill arises when a parent company:
A) pays less to acquire a subsidiary company than the market value of the subsidiary's net assets
B) pays more to acquire a subsidiary company than the market value of the subsidiary's net assets
C) pays less to acquire a subsidiary company than the book value of the subsidiary's net assets
D) pays more to acquire a subsidiary company than the book value of the subsidiary's net assets