Advanced Accounting test bank with complete solutions graded A+

Advanced Accounting test bank with complete solutions graded A+ Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for the investment. During 2013, Dew reported income of $250,000 and paid dividends of $80,000. There is no amortization associated with the investment. During 2013, how much income should Yaro recognize related to this investment? - ANSWER$75,000. 250,000 x 30% = 75,000. *Don't do anything with dividends in this case because it's only asking for income. A company should always use the equity method to account for an investment if: - ANSWERit has the ability to exercise SIGNIFICANT INFLUENCE over the operating policies of the investee. An upstream sale of inventory is a sale - ANSWERmade by the investee to the investor On January 1, 2011, Dermot Company purchased 15% of the voting common stock of Horne Corp. On January 1, 2013, Dermot purchased 28% of Horne's voting common stock. If Dermot achieves significant influence with this new investment, how much Dermot account for the change to the equity method? - ANSWERIt must restate the financial statements for 2012 and 2011 as if the equity method had been used for those two years. On January 2, 2013, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account for this investment. At the time of this investment, Gainsville's total stockholders' equity was $8,000,000. Austin gathered the following information about Gainsville's assets and liabilities.: Book Value Fair Value Buildings (10 yr life): $400,000 $500,000 Equipment (5 yr life): $1,000,000 $1,300,000 Franchises (8 yr life): $0 $400,000 For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair value was attributed to goodwill, which has not been impaired. What is the amount of goodwill associated with the investment? - ANSWER$300,000