Dobson inc earns 1350000 and pays cash dividends of

106. Dobson Inc. earns €1,350,000 and pays cash dividends of €450,000 during 2017.
Cornwell Corporation owns 70,000 of the 210,000 outstanding shares of Dobson.
What amount should Cornwell show in the investment account at December 31, 2017 if
the beginning of the year balance in the account was € 120,000?
a. €420,000
b. €300,000
c. €450,000
d. €600,000
Ans: a, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
107. Dobson Inc. earns €1,350,000 and pays cash dividends of €450,000 during 2017.
Cornwell Corporation owns 70,000 of the 210,000 outstanding shares of Dobson.
How much revenue from investment should Cornwell report in 2017?
a. € 150,000
b. €300,000
c. €450,000
d. €600,000
Ans: c, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting

Investments
For Instructor Use Only
12 - 21
108. On January 1, 2017, Duvall Industries acquired a 25% interest in Florida Corporation
through the purchase of 12,000 ordinary shares of Florida Corporation for $960,000.
During 2017, Florida Corp. paid $240,000 in dividends and reported a net loss of
$360,000. Duvall is able to exert significant influence on Florida. However, Duvall
mistakenly records these transactions using the cost method rather than the equity
method of accounting. Which of the following would show the correct presentation for
Duvall's investment using the equity method?
Investment Net
Account Earnings (loss)
a. $360,000 ($120,000)
b. $810,000 ($90,000)
c. $870,000 ($90,000)
d. $870,000 ($30,000)
Ans: b, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
109. Consolidated financial statements are prepared when a company owns _________ of the
ordinary shares of another company.
a. less than 20%
b. between 20% and 50%
c. less than 50%
d. more than 50%
Ans: d, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
110. The company whose shares are owned by the parent company is called the
a. controlled company.
b. subsidiary company.
c. investee company.
d. sibling company.
Ans: b, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
111. A company that owns more than 50% of the ordinary shares of another company is known
as the
a. charge company.
b. subsidiary company.
c. parent company.
d. management company.
Ans: c, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting