Chapter 1-solution class

Chapter 1-solution class - Chapter 1 The Equity Method of...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 1 The Equity Method of Accounting for Investments Multiple Choice Questions 1. On January 1, 2010, Swanson Company buys 300,000 shares of LifeSys, Inc.’s common stock for $1,800,000, the book value of the shares. This purchase gave Swanson a 30% ownership in LifeSys and the ability to exercise significant influence over operating and financing decisions. During 2010, LifeSys reported net income of $500,000 and paid a $1.20 per share dividend. What is the balance in Swanson’s Investment in LifeSys account at December 31, 2010? A. $1,800,000 B. $1,590,000 C. $1,950,000 D. $2,310,000 E. $2,010,000 1. B Cost of purchase $1,800,000 + Income accrual ($500,000 × 30%) 150,000 – Dividend received (300,000 × $1.20) (360, 000 ) = Investment in LifeSys Company $1,590,000 Study Guide – Chapter 1 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2. On July 1, 2010, West Co. buys 1,000,000 shares of National Water, Inc.’s common stock for $20,000,000, the book value of the shares. This purchase gave West Co. a 28% ownership in National Water and the ability to exercise significant influence over operating and financing decisions. For the fiscal year ending June 30, 2011, National Water reported net income of $1,900,000 and paid a $2.10 per share dividend. What is the balance in West Co’s Investment in National Water account at June 30, 2011? A. $18,432,000 B. $20,532,000 C. $22,632,000 D. $21,568,000 E. $17,368,000 2. A Cost of purchase $20,000,000 + Income accrual ($1,900,000 × 28%) 532,000 – Dividend received (1,000,000 × $2.10) (2,100, 000 ) = Investment in National Water Company $ 18,432,000 2 Advanced Accounting – 10/e
Background image of page 2
3. Tara Company owns 22% of Hawkins, Inc. and applies the equity method. During the current year, Tara buys inventory costing $300,000 and sells it to Hawkins for $690,000. At the end of the year, only 15% of this merchandise (at the transfer price) is still being held by Hawkins. What amount of unrealized gain must be deferred by Tara in reporting on the equity method? A . $58,500 B. $85,800 C. $45,000 D. $12,870 E. $22,770 3. D Inventory at year-end ($690,000 × .15) $103,500.00 Gross profit markup ($390,000 ÷ $690,000) × 565 Unrealized gain $ 58,500.00 Ownership share × .22 Intra-entity unrealized gain — deferred $ 12,870.00 Study Guide – Chapter 1 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4. 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 4. A 4 Advanced Accounting – 10/e
Background image of page 4
5. TunaCo purchases 30% of Stanley, Inc. on January 1, 2010 for $1,000,000. This acquisition gives TunaCo the ability to apply significant influence to Stanley’s operating and financing policies.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/25/2011 for the course ACCT 440 taught by Professor Suresh during the Spring '11 term at Copenhagen Business School.

Page1 / 24

Chapter 1-solution class - Chapter 1 The Equity Method of...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online