Generally Accepted Accounting Principles and Equity Method
Chapter 02
Reporting Intercorporate Interests
Multiple Choice Questions
On January 1, 2007, Rotor Corporation acquired 30 percent of Stator Company 's stock for $150,000. On the acquisition date, Stator reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 15 years. During 2007 and 2008 Stator reported net income of $25,000 and $15,000 and paid dividends of $10,000 and $12,000, respectively. Rotor uses the equity method.
1. Based on the preceding information, what amount of differential will be amortized annually?
A. $0
B. $750
C. $1,000
D. $2,000
2. Based on the preceding information, what will be the balance in the investment account on Dec 31, 2007?
A. $150,000
B. $157,500
C. $154,500
D. $153,500
3. Based on the preceding information, what amount of investment income will be reported by Rotor for the year 2007?
A. $6,500
B. $7,500
C. $7,000
D. $25,000
4. Based on the preceding information, what amount will Rotor report as the balance in the investment account on Dec 31, 2008?
A. $150,000
B. $157,500
C. $153,400
D. $153,500
5. Based on the preceding information, what amount of investment income will be reported by Rotor for 2008?
A. $6,500
B. $7,500
C. $3,500
D. $4,500
6. Based on the preceding information, had Rotor Corporation used the cost method, what would have been the balance in the investment account on Dec 31, 2008?
A. $150,000
B. $157,500
C. $153,400
D. $153,500
On January 1, 2007, Firewire Company acquired 40 percent of Browser Company 's common stock. For this acquisition, Firewire paid $45,000 above book value. The full differential was attributed to equipment with a remaining life of ten years and zero salvage value at the date of acquisition. During 2007 and 2008, Browser reported net income of $90,000 and $50,000 and paid
Reporting Intercorporate Interests
Multiple Choice Questions
On January 1, 2007, Rotor Corporation acquired 30 percent of Stator Company 's stock for $150,000. On the acquisition date, Stator reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 15 years. During 2007 and 2008 Stator reported net income of $25,000 and $15,000 and paid dividends of $10,000 and $12,000, respectively. Rotor uses the equity method.
1. Based on the preceding information, what amount of differential will be amortized annually?
A. $0
B. $750
C. $1,000
D. $2,000
2. Based on the preceding information, what will be the balance in the investment account on Dec 31, 2007?
A. $150,000
B. $157,500
C. $154,500
D. $153,500
3. Based on the preceding information, what amount of investment income will be reported by Rotor for the year 2007?
A. $6,500
B. $7,500
C. $7,000
D. $25,000
4. Based on the preceding information, what amount will Rotor report as the balance in the investment account on Dec 31, 2008?
A. $150,000
B. $157,500
C. $153,400
D. $153,500
5. Based on the preceding information, what amount of investment income will be reported by Rotor for 2008?
A. $6,500
B. $7,500
C. $3,500
D. $4,500
6. Based on the preceding information, had Rotor Corporation used the cost method, what would have been the balance in the investment account on Dec 31, 2008?
A. $150,000
B. $157,500
C. $153,400
D. $153,500
On January 1, 2007, Firewire Company acquired 40 percent of Browser Company 's common stock. For this acquisition, Firewire paid $45,000 above book value. The full differential was attributed to equipment with a remaining life of ten years and zero salvage value at the date of acquisition. During 2007 and 2008, Browser reported net income of $90,000 and $50,000 and paid