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Home / Questions / Retail Energy Corporation paid $1,300,000 on January 1, 2011, to purchase 32% of the outst

Retail Energy Corporation paid $1,300,000 on January 1, 2011, to purchase 32% of the outst

Retail Energy Corporation paid $1,300,000 on January 1, 2011, to purchase 32% of the outstanding shares of Natural Gas Limited. If this investment is accounted for using the equity method of accounting, and Natural Gas Limited reports $450,000 of net income in 2011, the following entry will be made on the books of Retail Energy Corporation:

A) income of $144,000 will be recorded

B) the Investment account will be increased by $416,000

C) the Investment account will be increased by $144,000

D) the Investment account will be decreased by $144,000

12) Companies with investments accounted for by the equity method often refer to the investee as a(n):

A) affiliated company

B) wholly-owned company

C) subsidiary company

D) trading partner

13) Barking Power Company accounts for its 35% investment in Pipeline Corporation under the equity method of accounting. The investment was made on January 1, 2010, at a cost of $625,000. Pipeline Corporation reported net income of $85,000 for the year ended December 31, 2010, and paid total dividends of $20,000 during 2010. On December 31, 2010, after making all appropriate entries, the balance in Barking Power Company's Long-Term Investment account will equal:

A) $647,750

B) $602,250

C) $583,000

D) $690,000

14) On January 1, 2010, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2010 and 2011 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2010 and 2011 were, respectively, $60,000 and $75,000. The long-term investment will appear on TXU Europe Corporation's December 31, 2010, balance sheet at:

A) $776,000

B) $840,000

C) $800,000

D) $816,000

15) On January 1, 2010, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2010 and 2011 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2010 and 2011 were, respectively, $60,000 and $75,000. The long-term investment will appear on TXU Europe Corporation's December 31, 2011, balance sheet at:

A) $746,000

B) $864,000

C) $836,000

D) $890,000

16) On January 1, 2010, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2010 and 2011 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2010 and 2011 were, respectively, $60,000 and $75,000. Assume on December 31, 2011, TXU Europe Corporation sells 50% of its investment in Alberta Power Pool Corporation for $525,000. TXU Europe Corporation will report a:

A) gain on sale of investment of $107,000

B) gain on sale of investment of $80,000

C) loss on sale of investment of $152,000

D) loss on sale of investment of $321,000

17) In 2011, Gigajoule Corporation used the equity method to account for a 25% ownership interest in Megawatt Corporation. If Megawatt Corporation reports $400,000 of income and pays $80,000 of dividends in 2011, the net effect of the entries made by Gigajoule Corporation in 2011 will be to:

A) reduce the Investment account by $320,000

B) reduce the Investment account by $80,000

C) increase the Investment account by $320,000

D) increase the Investment account by $80,000

18) An investor company with a 40% interest in an investee properly used the equity method to account for the investment. If the entries to the Investment account for the current year showed a debit of $45,000 and a credit of $22,000, the investee must have paid total dividends of:

A) $55,000

B) $22,000

C) $45,000

D) $100,000

Dec 09 2019 View more View Less

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