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dividends in the amount of $500,000. Hope mistakenly accounted for the investment as available for sale
instead of using the equity method. What effect would this error have on the investment account and net
income, respectively, for 2013?
A. Overstated by $1,050,000; understated by $1,050,000.
B. Understated by $1,050,000; understated by $1,050,000.
C. Overstated by $1,200,000; overstated by $1,200,000.
D. Understated by $1,200,000; overstated by $1,050,000.
93. Sox Corporation purchased a 40% interest in Hack Corporation for $1,500,000 on January 1, 2013. On
November 1, 2013, Hack declared and paid $1 million in dividends. On December 31, Hack reported a
net loss of $6 million for the year. What amount of loss should Sox report on its income statement for
2013 relative to its investment in Hack?
94. Assume that, on January 1, 2013, Matsui Co. paid $1,200,000 for its investment in 60,000 shares of
Yankee Inc. Further, assume that Yankee has 200,000 total shares of stock issued. The book value and
fair value of Yankee's identifiable net assets were both $4,000,000 at January 1, 2013. The following
information pertains to Yankee during 2013: What amount would Matsui report in its year-end 2013 balance sheet for its investment in Yankee?
D. None of the above is correct.
95. Gerken Company concluded at the beginning of 2013 that the company's ownership interest in DillCo
had increased to the point that it became appropriate to begin using the equity method to account for the
investment. The balance in the investment account is $50,000 at the time of the change, and accountants
working with company records determined that the balance would have been $75,000 if the account
had been adjusted for investee net income and dividends as prescribed by the equity method. After
implementing the change to the equity method, if financial statements were prepared:
A. Net income and re...
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- Spring '09
- Balance Sheet