When a company has acquired a passive interest in another corporation the

When a company has acquired a passive interest in

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43.When a company has acquired a "passive interest" in another corporation, the acquiringcompany should account for the investmenta.by using the equity method.b.by using the fair value method.c.by using the effective interest method.d.by consolidation.Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:Reporting, IFRS: NoneS44.Santo Corporation declares and distributes a cash dividend that is a result of currentearnings. How will the receipt of those dividends affect the investment account of theinvestor under each of the following accounting methods?Fair Value MethodEquity Method45.An investor has a long-term investment in stocks. Regular cash dividends received by theinvestor are recorded asFair Value MethodEquity Method46.When a company holds between 20% and 50% of the outstanding stock of an investee,which of the following statements applies?a.The investor should always use the equity method to account for its investment.b.The investor should use the equity method to account for its investment unless circum-stances indicate that it is unable to exercise "significant influence" over the investee.c.The investor must use the fair value method unless it can clearly demonstrate theability to exercise "significant influence" over the investee.d.The investor should always use the fair value method to account for its investment.Ans: B, LO: 3, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:Reporting, IFRS: None47.If the parent company owns 90% of the subsidiary company's outstanding common stock,the company should generally account for the income of the subsidiary under the17 - 13

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