Exam 1 Review(1) - Exam 1 Review 1 Yaro Company owns 30 of...

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Financial and Managerial Accounting Using Excel for Success
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Chapter 13 / Exercise EX 13–26
Financial and Managerial Accounting Using Excel for Success
Reeve/Warren
Expert Verified
Exam 1 Review 1. Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for the investment. During 2013, Dew reported income of $250,000 and paid dividends of $80,000. There is no amortization associated with the investment. During 2013, how much income should Yaro recognize related to this investment? A. $24,000. B. $75,000. C. $99,000. D. $51,000. E. $80,000.
2. On January 1, 2013, Bangle Company purchased 30% of the voting common stock of Sleat Corp. for $1,000,000. Any excess of cost over book value was assigned to goodwill. During 2013, Sleat paid dividends of $24,000 and reported a net loss of $140,000. What is the balance in the investment account on December 31, 2013?
3. On January 1, 2013, Jordan Inc. acquired 30% of Nico Corp. Jordan used the equity method to account for the investment. On January 1, 2014, Jordan sold two-thirds of its investment in Nico. It no longer had the ability to exercise significant influence over the operations of Nico. How should Jordan have accounted for this change?
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Financial and Managerial Accounting Using Excel for Success
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Chapter 13 / Exercise EX 13–26
Financial and Managerial Accounting Using Excel for Success
Reeve/Warren
Expert Verified
C. Jordan has the option of using either the equity method or the fair-value method for 2013 and future years. D. Jordan should report the effect of the change from the equity to the fair-value method as a retrospective change in accounting principle. E. Jordan should use the fair-value method for 2014 and future years but should not make a retrospective adjustment to the investment account. 4. On January 3, 2013, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account for this investment. At the time of the investment, Gainsville's total stockholders' equity was $8,000,000. Austin gathered the following information about Gainsville's assets and liabilities: For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair value was attributed to goodwill, which has not been impaired. What is the amount of goodwill associated with the investment?
E. $400,000.

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