Exam (elaborations)
Advanced Accounting, 15th Edition Joe Ben Hoyle TESTBANK
- Module
- Accounting
- Institution
- Abacus College, Oxford
Advanced Accounting, 15th Edition Joe Ben Hoyle TESTBANK
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Note: The answers at end of each chapter
,Student name:__________
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
1) Baker Company owns 15% of the common stock of Charlie Corporation and used the fair-
value method to account for this investment. Charlie reported net income of $120,000 for
2024 and paid dividends of $70,000 on October 1, 2024. How much income should Baker
recognize on this investment in 2024?
A) $18,000
B) $10,500
C) $28,500
D) $7,500
E) $50,000
2) Loeffler Company owns 35% of the common stock of Tetter Company and uses the equity
method to account for the investment. During 2024, Tetter reported income of $260,000 and
paid dividends of $90,000. There is no amortization associated with the investment. During
2024, how much income should Loeffler recognize related to this investment?
A) $90,000
B) $91,000
C) $122,500
D) $31,500
E) $59,500
3) On January 1, 2024, Lee Company paid $1,870,000 for 80,000 shares of Thomas Company’s
voting common stock which represents a 45% investment. No allocation to goodwill or other
specific account was necessary. Significant influence over Thomas was achieved by this
acquisition. Thomas distributed a dividend of $2.00 per share during 2024 and reported net
income of $720,000. What was the balance in the Investment in Thomas Company account
found in the financial records of Lee as of December 31, 2024?
A) $2,114,000.
B) $2,194,000
C) $2,354,000
D) $2,158,000
E) $2,034,000
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,4) A necessary condition to use the equity method of reporting for an equity investment is that
the investor company must
A) have the ability to exercise significant influence over the operating and financial
policies of the investee.
B) own at least 30% of the investee's voting stock.
C) possess a controlling interest in the investee's voting stock.
D) not have the ability to exercise significant influence over the operating and financial
policies of the investee.
5) On January 1, 2022, Dermot Company purchased 15% of the voting common stock of Horne
Corporation. On January 1, 2024, Dermot purchased 28% of Horne’s voting common stock.
If Dermot achieves significant influence with this new investment, how must Dermot account
for the change to the equity method?
A) It must use the equity method for 2024 but should make no changes in its financial
statements for 2023 and 2022.
B) It should prepare consolidated financial statements for 2024.
C) It must restate the financial statements for 2023 and 2022 as if the equity method had
been used for those two years.
D) It should record a prior period adjustment at the beginning of 2024 but should not
restate the financial statements for 2023 and 2022.
E) It must restate the financial statements for 2023 as if the equity method had been used
then.
6) During January 2023, Nelson, Incorporated acquired 30% of the outstanding common stock
of Fuel Company for $1,600,000. This investment gave Nelson the ability to exercise
significant influence over Fuel. Fuel’s assets on that date were recorded at $7,200,000 with
liabilities of $3,400,000. Any excess of cost over book value of Nelson’s investment was
attributed to unrecorded patents having a remaining useful life of ten years.
In 2023, Fuel reported net income of $650,000. For 2024, Fuel reported net income of
$800,000. Dividends of $250,000 were paid in each of these two years. What was the
reported balance of Nelson’s Investment in Fuel Company at December 31, 2024?
A) $1,793,000
B) $1,885,000
C) $1,943,000
D) $1,977,000
E) $1,054,300
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, 7) On January 1, 2024, Bangle Company purchased 30% of the voting common stock of Sleat
Corporation for $1,000,000. Any excess of cost over book value was assigned to goodwill.
During 2024, Sleat paid dividends of $24,000 and reported a net loss of $140,000. What is
the balance in the investment account on December 31, 2024?
A) $950,800
B) $958,000
C) $836,000
D) $990,100
E) $956,400
8) On January 1, 2024, Halpert Incorporated acquired 30% of Schrute Corporation. Halpert
used the equity method to account for the investment. On January 1, 2025, Halpert sold two-
thirds of its investment in Schrute. It no longer had the ability to exercise significant
influence over the operations of Schrute. How should Halpert account for this change?
A) Halpert should continue to use the equity method to maintain consistency in its
financial statements.
B) Halpert should restate the prior years’ financial statements and change the balance in
the investment account as if the fair-value method had been used since 2024.
C) Halpert has the option of using either the equity method or the fair-value method for
2024 and future years.
D) Halpert should report the effect of the change from the equity to the fair-value method
as a retrospective change in accounting principle.
E) Halpert should use the fair-value method for 2025 and future years, but should not
make a retrospective adjustment to the investment account.
9) Kane Incorporated owns 30% of Woodhouse Company and applies the equity method.
During the current year, Kane bought inventory costing $71,500 and then sold it to
Woodhouse for $130,000. At year-end, only $30,000 of merchandise was still being held by
Woodhouse. What amount of intra-entity gross profit must be deferred by Kane?
A) $9,000
B) $4,050
C) $13,500
D) $17,550
E) $5,600
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