The cost method of accounting for investments in

102. The cost method of accounting for investments in stock should be used when the
investment is
a. influential and controlling.
b. influential and noncontrolling.
c. controlling.
d. non-influential and noncontrolling.
Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Project
Management, IMA: Investment Decisions
H-24
103. The ability of an investing company to affect the operating and financial activities of
another company, even though the investor holds less than 50% of the stock, is known as
FOR INSTRUCTOR USE ONLY

Reporting and Analyzing Investments
104. Under the equity method of accounting for investments in common stock, when a
dividend is received from the investee company
FSA
105. The receipt of dividends on an investment affects the Stock Investment account when
which of the following methods is used?
106. Bing Company owns 30% interest in the stock of Yeti Corporation. During the year, Yeti
pays $75,000 in dividends to Bing, and reports $400,000 in net income. Bing Company’s
investment in Yeti will increase Bing net income by
a. $120,000.
b. $97,500.
c. $75,000.
d. $22,500.
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem
Solving, IMA: Reporting
Solution: 30% × $400,000  $120,000
(Own. % × Net inc.)