If the cost method is used to account for a long-term investment in common stock, dividends received should be

credited to the Dividend Revenue account.

credited to the Stock Investments account.

debited to the Stock Investments account.

recorded only when 20% or more of the stock is owned.

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

has significant influence on the investee and that the equity method should be used to account for the investment.

has insignificant influence on the investee and that the cost method should be used to account for the investment.

should apply the cost method in accounting for the investment.

will prepare consolidated financial statements.

If an investor owns less than 20% of the common stock of another corporation as a longterm investment

it is presumed that the investor has relatively little influence on the investee.

the equity method of accounting for the investment should be employed.

it is presumed that the investor has significant influence on the investee.

When an entity holds between 20% and 50% of the outstanding ordinary shares of an investee, which of the following statements is true?

The investor should use the equity method unless circumstances indicate that it is unable to exercise significant influence over the investee

The investor should always use the equity method

The investor must use the fair value method unless it can be clearly demonstrated that the investor has the ability to exercise significant influence over the investee

The investor should always use the fair value method

Under the equity method, the Stock Investments account is increased when the

investee company reports net income.

investee company pays a dividend.

investee company reports a loss.

stock investment is sold at a gain.

If an associate has outstanding cumulative preference shares, the investor computes share of profit or loss

After adjusting for preference dividends, whether or not the dividends have been declared.

After adjusting for preference dividends which were actually paid during the year.

Without regard for preference dividends.

After adjusting for the preference dividends only when declared.

An investor shall discontinue the equity method when

The investor ceases to have significant influence over the associate.

The associate operates under severe long-term restrictions

The investor ceases to have control over the associate.

The business activities of the investor and associate or dissimilar.

When an investor uses the equity method to account for investment in ordinary shares, the investment account will be increased when the investor recognizes

A proportionate interest in the net income of the investee

A cash dividend received from the investee

Periodic amortization of the goodwill

A share dividend received from the investee

After the date of acquisition, the investment account using the equity method would

Be increased by its share of the earnings of the investee, and decreased by its share of the losses of the investee.

Not be affected by its share of the earnings or losses of the investee

Be increased by its share of the earnings of the investee, but not be affected by its share of the losses of the investee.

Be increased by its share of the earnings of the investee, but not be affected by its share of the losses of the investee

The equity method is not applicable under all of the following circumstances, except

The investor is in the process of filing financial statement with SEC for the purpose of issuing debt and equity instruments in a public market.

The investor as a wholly-owned subsidiary.

The ultimate parent of the investor produces consolidated financial statements.

Goodwill arising from an investment in associate is

Included in the carrying amount of the investment and not amortized.

Included in the carrying amount of the investment and amortized over the useful life.

Charged to expense immediately.

The is included as income in the determination of the investor’s share of the associate’s profit or loss in the period in which the investment is acquired. The of interest acquired is attributable to undervaluation of the investee’s depreciable assets and goodwill.

excess of cost over carrying amount

Investment in Associate Quiz

37 questions

Show all answers

1.

DROPDOWN QUESTION

1 min • 1 pt

Refers to a sales of assets from associate to the investor? (a)

Downstream transaction

Upstream transaction

Remeasurement

None of the above

2.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the treatment of downstream transaction?

Eliminated

accounted for as sale of assets

same as upstream transaction

accounted for as held for sale

3.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

In discontinuance of equity method, the investor may account for the investment as

Financial Asset at fair value through profit or loss

Financial Asset at fair value through other comprehensive income

Investment in unquoted equity

all of the above

4.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Equity method is not applicable when

the investor is wholly owned subsidiary

the investor's debt and equity instruments are not traded in public market

the investor did not file or in the process of filing financial statements with the SEC

all of the above

5.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Investment in less than 20% may account for

Fair Value Method

Cost Method

Neither of the choices

Either of the choices

6.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The investment in associate achieved in stages is covered by

PAS 28

PFRS 3

PAS 32

PFRS 9

7.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Under the Fair value approach, the total cost of investment for initial application of the equity method is the fair value of the existing interest acquired

TRUE

FALSE

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Investment in Associate

Refers to a sales of assets from associate to the investor? (a)

What is the treatment of downstream transaction?

In discontinuance of equity method, the investor may account for the investment as

Equity method is not applicable when

Investment in less than 20% may account for

The investment in associate achieved in stages is covered by

Under the Fair value approach, the total cost of investment for initial application of the equity method is the fair value of the existing interest acquired

Under fair value approach, the existing interest in the associate is remeasured at fair value with any changes in fair value included in the profit or loss

Under the fair value and cost method, the investor does share in the profit and loss of the investee because of the legal relationship between the investor and investee

Associate held for sale is accounted for under

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