Ch 1 Multiple Choice Questions

Ch 1 Multiple Choice Questions - *He loves numbers 8, 9,...

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***He loves numbers 8, 9, and 10 o “Comprehensive problems” ***Don’t like number 5…don’t look at it! 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 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 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 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 Study Guide – Chapter 1 1
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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. Stanley reports assets on that date of $2,500,000 with liabilities of $300,000. One building with a 10-year remaining useful life has a book value of $400,000 and a fair market value of $550,000. During 2010, Stanley reports net income of $340,000 while paying dividends of $150,000. What is the Investment in Stanley account balance in TunaCo’ accounting records at December 31, 2010? A. $1,000,000 B. $ 947,500 C. $ 952,000 D. $1,185,500 E. $1,052,500 6. Smith Company holds 23% of the outstanding shares of Hello Greeting Cards and appropriately applies the equity method of accounting. For 2011, Hello Greeting Cards reports earnings of $430,000 and pays cash dividends of $180,000. During the year, Hello Greeting Cards acquired inventory for $280,000, which was then sold to Smith for $400,000. At the end of 2011, Smith
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Ch 1 Multiple Choice Questions - *He loves numbers 8, 9,...

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