B net income will be unchanged and retained earnings

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Unformatted text preview: tained earnings will be higher by $25,000. B. Net income will be unchanged, and retained earnings will be higher by $25,000. C. Net income and retained earnings will be higher by $75,000. D. The accounts will be unchanged, because no adjustment is necessary. 96. On April 1, 2013, BigBen Company acquired 30% of the shares of LittleTick, Inc. BigBen paid $100,000 for the investment, which is $40,000 more than 30% of the book value of LittleTick's identifiable net assets. BigBen attributed $15,000 of the $40,000 difference to inventory that will be sold in the remainder of 2013, and the rest to goodwill. LittleTick recognized a total of $20,000 of net income for 2013, and paid total dividends for the year $10,000; these dividends were issued quarterly. BigBen's investment in LittleTick will affect BigBen's 2013 net income by: A. A loss of $10,500. B. Earnings of $4,500. C. Earnings of $1,125. D. Earnings of $3,450. 97. Cucumber Company concluded at the beginning of 2013 that the company's ownership interest in PickelCo had decreased to the point that it became appropriate to begin accounting for its investment as available for sale, rather than using the equity method as it had been doing. The balance in the investment account is $75,000 at the time of the change, and accountants working with company records determined that the balance would have been $50,000 if the investment had been accounted for as an available-forsale investment. At the time of implementing the change to the available-for-sale method, if financial statements were prepared: A. Net income and retained earnings will be lower by $25,000. B. Net income will be unchanged, and retained earnings will be lower by $25,000. C. The accounts will be unchanged, because no adjustment is necessary. D. Other comprehensive income and accumulated other comprehensive income will be lower by $25,000. 98. When the equity method of accounting for investments is used by the investor, the amortization of additional depreciation due to differences between book values and fair values of inves...
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This document was uploaded on 07/05/2013.

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