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Home / Questions / Under the equity method of accounting for investments, an investor recognizes its share of

Under the equity method of accounting for investments, an investor recognizes its share of

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the

a.Investor sells the investment

b.Investee declares  a dividend

c.Investee pays a dividend

d.Earnings are reported by the investee in its financial statements

2.Pence Corporation, which accounts for its investments in the common stock of Walsh Company by the equity method, should ordinarily record a dividend received from Walsh as

a.An addition to the carrying value of the investment

b.Dividend revenue

c.A reduction of the carrying value of the investment

d.Revenue from affiliate

3.On January 15, 2005, a corporation was granted a patent on a product. On January 2, 2013, to protect its patent, the corporation purchased a patent on a competing product the originally was issued on January 10, 2011. Because of its unique plant, the corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be

a.Amortized over a maximum period of 17 years

b.Amortized over a maximum period of 13 years

c.Amortized over a maximum period of 9 years

d.Expensed in 2013

4.Pacer Company purchased 300 of the 1, 000 outstanding shares of Queen Company’s common stock for $80,000 on January 2, 2012. During 2013, Queen Company declared dividends of $8,000 and reported earnings for the year of $20,000.

If Pacer Company uses the equity method of accounting for its investment in Queen Company, its Investment in Queen Company account at December 31, 2013 should be

a.$100, 000

b.$88,000

c.$83,600

d.$80,000

5.Refer to the facts in problem (4). If Pacer Company uses the lower of cost or market method of accounting for its investment in Queen Company, and the value of its investment hasn’t changed, its Investment in Queen Company account on December 31, 2013, should be

a.$100, 000

b.$88,000

c.$80,000

d.$73,600

6.A large, publicly held company developed and registered a trademark during 2013. The cost of developing and registering the trademark should be accounted for by

a.Charging it to an asset account that should not be amortized

b.Expensing it as incurred

c.Amortizing it over 25 years if in accordance with management’s evaluation

d.Amortizing it over its useful life or 17 years, whichever is shorter

7.Goodwill should be written off

a.As soon as possible against retrained earnings

b.When there is evidence that its carrying value has been impaired

c.By systematic charges against retained earnings over the period benefited, but not      more  than 40 years

d.By systematic charges to expense over the period benefited, but not more than 40  years

8.A net unrealized loss on a company’s long-term portfolio of available for sale  securities should be reflected in the current financial statements as

a.An extraordinary item shown as a direct reduction from retained earnings

b.A current loss resulting from holding marketable equity securities

c.A footnote or parenthetical disclosure only

d.A component of other comprehensive income

9.Changes in the fair value of a long-term available for sale equity securities portfolio should be reported as a component of

a.Other comprehensive income

b.Noncurrent assets

c.Noncurrent liabilities

d.Net income

10.Cash dividends declared out of current earnings are distributed to an investor. How will the investor’s investment account be affected by those dividends under each of the following accounting methods?

a.Decrease                                No effect

b.Decrease                                Decrease

c.No effect                                Decrease

d.No effect                                  No effect

Dec 09 2019 View more View Less

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