Chapter Quiz

Page 1 of 4

Home > Chapter 1 > Chapter Quiz

Course-wide Content Kaplan CPA Review Simu... Excel Template Walkthr... Errata
Chapter 1

Chapter Quiz
(See related pages)

Quizzes Chapter Quiz Additional Resources PowerPoint Presentations Check Figures Excel Templates

Results Reporter
Out of 15 questions, you answered 15 correctly with a final grade of 100% 15 correct (100%) 0 incorrect (0%) 0 unanswered (0%)

Your Results:
The correct answer for each question is indicated by a .

1 CORRECT

Item is based on the following information: On January 1 of the current year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for $1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in Booker and the ability to significantly influence operating and financing decisions. At the time of the acquisition, Booker had a total book value of $4,800,000. During the current year, Booker reported net income of $700,000 and paid a $.85 per share dividend. Barger elects to use the equity method of accounting. What is the balance in the Investment in Booker account in the records of Barger Company at December 31, of the current year? A) $1,200,000 B) $1,247,500 C) $1,772,500 D) $1,900,000 E) $1,152,500 Feedback:

2 CORRECT

Item is based on the following information: On January 1 of the current year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for $1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in Booker and the ability to significantly influence operating and financing decisions. At the time of the acquisition, Booker had a total book value of $4,800,000. During the current year, Booker reported net income of $700,000 and paid a $.85 per share dividend. Using the equity method of accounting, what is the journal entry to record the receipt of dividends during the current year? A) B) C) D) E) Feedback: Dividend received (150,000 x $.85) is equal to $127,500

3 CORRECT

Item is based on the following information: On January 1 of the current year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for $1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in Booker and the ability to significantly influence operating and financing decisions. At the time of the acquisition, Booker had a total book value of $4,800,000. During the current year, Booker reported net income of $700,000 and paid a $.85 per share dividend. Using the equity method of accounting, what is the journal entry to accrue the current year earnings? A) No entry is recorded B) C) D) E) Feedback: Equity in Investee Income (150,000 x $.85) is equal to $175,000

4 CORRECT

Tara Company owns 30% of Hawkins, Inc. and applies the equity method. During the current year, Hawkins buys inventory costing $400,000 and sells it to Tara for $500,000. At the end of the year, only 25% of this merchandise is still being held by Tara. What amount of unrealized gain must be deferred by Hawkins in reporting on the equity method? A) $ 937.50

http://highered.mcgraw-hill.com/sites/0078136628/student_view0/chapter1/chapter_quiz.h... 1/18/2012

Chapter Quiz

Page 2 of 4

B) $ 30,000.00 C) $ 25,000.00 D) $ 7,500.00 E) $100,000.00 Feedback:

5 CORRECT

What is a downstream sale? A) A sale from an investor to its investee B) A sale from a producer to its outside supplier C) A sale from an investee to its investor D) A sale from one manufacturer to another E) A sale from a small company to a large one

6 CORRECT

What is an upstream sale? A) A sale from an investor to its investee B) A sale from a producer to its outside supplier C) A sale from an investee to its investor D) A sale from one manufacturer to another E) A sale from a small company to a large one

7 CORRECT

TunaCo purchases 25% of Stanley, Inc. on January 1 of the current year for $500,000. This acquisition gives TunaCo the ability to apply significant influence to Stanley's operating and financing policies and TunaCo elects to use the equity method of accounting. Stanley reports assets on that date of $1,600,000 with liabilities of $400,000. One building with a 15-year life has a book value of $100,000 and a fair market value of $400,000. During the current year, Stanley reports net income of $140,000 while paying dividends of $70,000. What is the Investment in Stanley account balance in TunaCo's accounting records at the end of the current year? A) $500,000 B) $517,500 C) $530,000 D) $460,000 E) $512,500 Feedback:

8 CORRECT

Smith Company holds 20% of the outstanding shares of Leef Greeting Cards and applies the equity method of accounting. For the current year, Leef reports earnings of $100,000 and pays cash dividends of $22,000. During the current year, Leef acquired inventory for $80,000, which was then sold to Smith for $100,000. At the end of the current year, Smith continues to hold merchandise with a transfer price of $40,000. Assuming no amortization expense related to this investment, what Equity in Investee Income should Smith report in the current year? A) $18,400 B) $ -0C) $12,000 D) $14,000 E) $ 7,600 Feedback:

9 CORRECT

Norbin Company uses the equity method to account for its investment in Stice Company's common stock. After the acquisition date, the investment account reported on Norbin's balance sheet would: A) be increased by Norbin's share of Stice's earnings and decreased by Norbin's share of Stice's losses. B) be increased by Norbin's share of Stice's earnings but not be affected by Norbin's share of Stice's losses.

http://highered.mcgraw-hill.com/sites/0078136628/student_view0/chapter1/chapter_quiz.h... 1/18/2012

Chapter Quiz

Page 3 of 4

C) not be affected by Norbin's share of Stice's earnings and losses. D) not be affected by Norbin's share of Stice's earnings but be decreased by Norbin's share of Stice's losses. E) be decreased by Norbin's share of Stice's earnings and increased by Norbin's share of Stice's losses.

10 CORRECT

Emmy Company buys 30% of Soupy, Inc's common stock on January 1 of the current year for $440,000. The equity method of accounting is used. Soupy's net assets on that date totaled $1,100,000. Soupy immediately begins selling inventory to Emmy as follows

Inventory held at the end of one year is sold at the beginning of the next. Soupy reports net income of $110,000 in the first year and $150,000 in the second year while paying $50,000 in dividends each year. What should Emmy Company report as Equity in Soupy's Income at the end of the second year? A) $45,000 B) $33,000 C) $37,200 D) $49,200 E) $52,800 Feedback:

11 CORRECT

A permanent decline in the investee's market value is recorded as a: A) Reduction of the Equity in Subsidiary Income account. B) An Extraordinary Loss on the Investor's Income Statement. C) Reduction in the Investment Account. D) Increase to the Investment Account. E) No entry is made for market value declines.

12 CORRECT

B. Atman, Inc. acquires 19% of S. Uperman, Inc. and owns the highest percentage of stock of any other stockholder. The C.E.O. of B. Atman is on the Board of Directors of S. Uperman. Material intercompany transactions exist between these two companies. B. Atman intends to hold this investment for at least two years. B. Atman will report this investment: A) As trading securities. B) As available-for-sale securities. C) As a consolidated entity. D) Using the equity method. E) As a special purpose entity.

13 CORRECT

A company acquires a 25% investment in another corporation. The reporting of this investment depends primarily on: A) The percentage of ownership. B) The length of time that the investor intends to own the investment. C) Technology dependency. D) Material intercompany transactions. E) The degree of influence that the investor has over the investee.

14 CORRECT

The FASB provides a fair-value reporting option for investments. Which of the following investments must use the equity method of accounting? A) Available for sale securities B) Held-to-maturity securities C) 20-50% ownership in investments D) More than 50% ownership in investment E) Variable interests

15 CORRECT

Which of the following statements are true? A) Firms that employ the equity method to account for an investment may switch to fair value and have the option to switch back to the equity method. B) The fair value option in reporting investments will probably increase the volatility in earnings that results from using different measurement attributes in reporting related financial assets and financial liabilities. C) Changes in fair value are reported within comprehensive income. D) Fair values for financial assets and liabilities provide more relevant and understandable information than cost or cost-based measures.

E-mail Your Results

http://highered.mcgraw-hill.com/sites/0078136628/student_view0/chapter1/chapter_quiz.h... 1/18/2012

Chapter Quiz

Page 4 of 4

Date: Wed Jan 18 16:53:40 2012 My name: Section ID: E-mail these results to: E-mail address: Me: My Instructor: My TA: Other:
E-mail The Results

Format:
HTML HTML HTML HTML

To learn more about the book this website supports, please visit its Information Center. 2011 McGraw-Hill Higher Education Any use is subject to the Terms of Use and Privacy Notice. McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.

http://highered.mcgraw-hill.com/sites/0078136628/student_view0/chapter1/chapter_quiz.h... 1/18/2012