51. Which of the following statements is true if an investor owns more than 20% but less than 50% of the common shares of another corporation as an investment?
A. The cost method should be used to account for the investment.
B. It is likely that the investor has relatively little influence on the investee.
C. It is likely that the investor has significant influence in the investee.
D. Consolidated financial statements must be prepared.
52. Under the equity method of accounting for investments in the shares of another company, when a dividend is received from the investee company which of the following occurs?
A. The equity investment account is decreased.
B. The equity investment account is increased.
C. The dividend revenue account is credited.
D. The investment income account is credited.
53. Which of the following statements concerning the equity method is true?
A. The equity method is used to account for investments in other companies when the investor purchases less than 20% of the voting shares of the investee.
B. The adjustments made using the equity method are the same as those when consolidated financial statements prepared, except the effect is summarized in a single line.
C. The investment account on the balance sheet will reflect the market value of the investee.
D. The investment income account on the income statement is a good predictor of future dividends to be received.
54. Under the equity method, when is the investment account on the balance sheet credited?
A. When the investee reports net earnings.
B. When the investee declares a dividend.
C. When the investment is originally acquired and the investee reports net earnings.
D. The equity account is never credited.
55. Young Company owns 30% of the voting shares of Grill Corporation. During the year, Grill paid $20,000 in dividends and reported $100,000 in net earnings. How much will Young Company's net earnings increase as a result of their investment in Grill Corporation?
A. $6,000
B. $24,000
C. $30,000
D. $36,000
56. Young Company owns 30% of the voting shares of Grill Corporation. During the year, Grill paid $20,000 in dividends and reported $100,000 in net earnings. By how much did Young Company's investment account increase on their balance sheet?
A. $6,000
B. $24,000
C. $30,000
D. $36,000
57. On January 1, 2014, Grange Corporation purchased 25% of the common shares of Butler Limited for $200,000. During 2014, Butler Corporation reported net earnings of $80,000 and paid cash dividends of $40,000. What is the balance of the Investment in Butler account on the books of Grange Corporation at December 31, 2014?
A. $190,000
B. $200,000
C. $210,000
D. $220,000
58. On January 1, 2014, Grange Corporation purchased 25% of the common shares of Butler Limited for $200,000. During 2014, Butler Corporation reported net earnings of $80,000 and paid cash dividends of $40,000. How much investment income from its investment in Butler Limited did Grange report on its income statement ending December 31, 2014?
A. $10,000
B. $20,000
C. $40,000
D. $80,000
59. Roddick Holdings Inc. accounts for its investment in the common shares of Henry Ltd. using the equity method. Roddick should ordinarily record a cash dividend received from Henry as:
A. a reduction of the carrying value of the investment.
B. contributed surplus.
C. an addition to the carrying value of the investment.
D. dividend income.
60. Under the equity method of accounting for investments, when will the investor recognize its share of the earnings?
A. When the investor sells the investment.
B. When the investee declares a dividend.
C. When the investee pays a dividend.
D. When the earnings are reported by the investee in its financial statements.