***He loves numbers 8, 9, and 10
***Don’t like number 5…don’t look at it!
Multiple Choice Questions
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?
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
account at June 30, 2011?
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?
What is a downstream sale?
A sale from an investor to its investee
A sale from a producer to its outside supplier
A sale from an investee to its investor
A sale from one manufacturer to another
A sale from a small company to a large one
Study Guide – Chapter 1