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Unformatted text preview: 1. LO3 p. 28 When an investor uses the equity method to account for investments in common stock, cash dividends received by the investor from the investee should be recorded as a. A deduction from the investor's share of the investee's profits. b. Dividend income. c. A deduction from the stockholders' equity account, dividends to stockholders. d. A deduction from the investment account. Pg 7,8 (AICPA adapted) 2. LO2 Which of the following does not indicate an investor company's ability to significantly influence an investee? a. Material intra-entity transactions. b. The investor owns 30 percent of the investee but another owner holds the remaining 70 percent. Pg 5 c. Interchange of personnel. d. Technological dependency. 3. LO3 Sisk Company has owned 10 percent of Maust, Inc., for the past several years. This ownership did not allow Sisk to have significant influence over Maust. Recently, Sisk acquired an additional 30 percent of Maust and now will use the equity method. How will the investor report this change? a. A cumulative effect of an accounting change is shown in the current income statement. b. No change is recorded; the equity method is used from the date of the new acquisition. c. A retrospective adjustment is made to restate all prior years presented using the equity method. Pg 9,10 d. Sisk has the option to choose the method to show this change. 4. LO7 Under the fair-value option, which of the following affects the income the investor recognizes from its ownership of the investee? a. The investee's reported income adjusted for excess cost over book value amortizations. b. Changes in the fair value of the investor's ownership shares of the investee. Pg 22,23 c. Intra-entity profits from upstream sales. d. Extraordinary items reported by the investee. 5. LO7 When an investor elects the fair-value option for a significant influence investment, cash dividends received by the investor from the investee should be recorded as a. A deduction from the investor's share of the investee's reported income....
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This note was uploaded on 02/20/2012 for the course ACC 3101 taught by Professor Tom during the Spring '11 term at American University in Bulgaria.
- Spring '11