Exam 1 Review 1 - Exam 1 Review 1. Yaro Company owns 30%...

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?

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.