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ACCT 405 Week 1 Quiz Latest

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ACCT 405 Week 1 Quiz Latest

ACCT 405 Week 1 Quiz Latest

ACCT405

ACCT 405 Week 1 Quiz Latest

Question 1 (TCO 1)

Which of the following results in a decrease in the equity in investee income account when applying the equity method?

  • Dividends paid by the investor
  • Net income of the investee
  • Unrealized gain on intercompany inventory transfers for the current year
  • Unrealized gain on intercompany inventory transfers for the prior year

Question 2 (TCO 1)

In a situation where the investor exercises significant influence over the investee, which of the following entries is not actually posted to the books of the investor?

(1) Debit to the investment account and a credit to the equity in investee income account

(2) Debit to cash (for dividends received from the investee) and a credit to dividend revenue

(3) Debit to cash (for dividends received from the investee) and a credit to the investment account

  • Entries 1 and 2
  • Entries 2 and 3
  • Entry 1 only
  • Entry 2 only
  • Entry 3 only

Question 3 (TCO 1)

A company should always use the equity method to account for an investment if

  • it has the ability to exercise significant influence over the operating policies of the investee.
  • it owns 30% of another company’s stock.
  • it has a controlling interest (more than 50%) of another company’s stock.
  • the investment was made primarily to earn a return on excess cash.
  • it does not have the ability to exercise significant influence over the operating policies of the investee.

Question 4 (TCO 1)

George Company owns 15% of the common stock of Thomas Corporation and used the fair-value method to account for this investment. Thomas reported net income of $110,000 for the year 20×1 and paid dividends of $60,000 on October 1, 20×1. How much income should George recognize on this investment in 20×1?

  • $16,500
  • $9,000
  • $25,500
  • $7,500
  • $60,000

Question 5 (TCO 1)

According to FAS 159,

  • all entities may elect the fair value option.
  • the statement permits all entities to choose to measure eligible items at fair value at specified dates.
  • the fair value option may be applied instrument by instrument with a few exceptions.
  • FAS 159 is similar to IAS 39 but is not identical.