ACCTG 23_FINAL EXAM FIRST TERM 2020

It is an entity over which the investor has significant influence?

• Associate

• Investee

• Venture capital organization

• Mutual fund

Which of the following statements best describes the term "significant influence"?

• The holding of a significant proportion of the share capital in another entity

• The contractually agreed sharing of control over an economic entity

• The power to participate in the financial and operating policy decisions of an entity

• The mutual sharing in the risks and benefits of a combined entity

On January 1 of the current year, an entity purchased 10% of another entity's ordinary shares. The entity purchased additional shares bringing ownership up to 40% on August 1 of the current year. During October of the current year, the investee declared and paid a cash dividend on all of the outstanding ordinary shares. How much income from the investment should the entity report for the current year?

• 10% of the investee's income from January 1 to July 31, plus 40% of the investee's income from August 1 to December 31

• 40% of the investee's income from August 1 to December 31 only

• 40% if investee's income for the current year

• Amount equal to dividends received from the investee

An investor uses the cost method for 15% ownership in an investee. At year-end, the investor has a receivable from the investee. How should the receivable be reported in the investor's year-end financial statements?

• The total receivable should be reported separately

• The total receivable should be included as part of the investment, without separate disclosure

• Eighty-five percent of the receivable should be reported separately, with balance offset against the investee's payable to the investor

• The total receivable should be offset against the investee's payable to the investor, without separate disclosure

An investor uses the cost method to account for investment in ordinary shares. Dividends received in excess of the investor's share of the investee's earnings subsequent to the date of investment

• Do not affect the investment account

• Increase the investment account

• Decrease the investment account

• Increase the dividend revenue

When an investor uses the cost method to account for the investment in ordinary shares, cash dividends received by the investor from the investee should be recorded as

• Deduction from the investment account

• Dividend income

• Addition to the investor's share of the investee's profit

• Deduction from the investor's share of the investee's profit

When an investor purchases sufficient ordinary shares to gain significant influence over the investee, what is the proper accounting treatment of any excess of cost over carrying amount of net assets acquired?

• The excess remains in the investment account until it is sold

• The excess is immediately expensed in the period in which the investment is made

• The excess is amortized over the time period that it is reasonable in the light of the underlying cause of the excess

• The excess is charged to retained earnings at the time the investor resells the investment

An investor uses the equity method to account for 30% investment. Amortization of the investor's share of the excess of fair value over carrying amount of depreciable assets at the date of the purchase shall be reported in the investor's income statement as part of

• Other expense

• Depreciation expense

• Equity in earnings of the investee

• Amortization of goodwill

An investor uses equity method to account for purchase of another entity's ordinary shares at the beginning of the current year. On the date of acquisition, the fair value of the investee's inventory and land exceeded carrying amount. How would the inventory and land excess affect respectively the investor's reported equity in earnings of the investee for the current year?

• Decrease; Decrease

• Decrease; No Effect

• Increase; Increase

• Increase; No Effect

An investor uses the equity method to account for investment in ordinary shares. The purchase price implies a fair value of the investee's depreciable assets in excess of the investee's net assets carrying values. The investor's amortization of the excess

• Decrease the investment account

• Decreases the goodwill account

• Increases the investment revenue account

• Does not affect the investment account