31．The California Wines owns 40 percent of a joint venture, Western Vineyards. Vineyard's income statement for this period is as follows:

California Wines purchases 30 percent of the output of Vineyard. The amount of revenues, COGS, and net income of Vineyard to be included in the California Wine's income statement under proportionate consolidation are, respectively,

A)  $0; $0; $0.

B)  $2,400; $1,200; $360.

C)  $4,000; $3,000; $360.

D)  $2,800; $1,800; $360.

32．Mashburn Company acquired 25% of the 100,000 outstanding shares of Humm Co. on January 1 for $250,000 in cash. Humm Co. earned $1 per share and had a dividend payout ratio of 40%. As of December 31, Humm Co. shares were trading in the open market at $12 per share. Calculate the income statement treatment of the Humm Co. investment as of December 31.

A)  $10,000.

B)  $75,000.

C)  $25,000.

D)  -$25,000.

33．On December 31, 2001 Company P invests $5,000 in Company S in exchange for 25 percent of the company. During 2002, Company S earns $2,000 and pays a dividend of $500. If Company P uses the equity method of accounting, what values will be reported on the balance sheet and income statement? How much cash will be recognized from the investment?

A)                   Balance Sheet      Income Statement   Cash

$5,375                      $500                 $125

B)                   Balance Sheet      Income Statement   Cash

$5,500                        $0                     $0

C)                   Balance Sheet      Income Statement   Cash

$5,500                    $2,000              $500

D)                   Balance Sheet      Income Statement   Cash

$5,375                    $125               $125

34．Birtch Corporation acquires 25 percent of the common stock of TRQ Inc. on January 1, 2002. TRQ subsequently reports net income for the full year of $700,000, and pays a cash dividend equal to 30 percent of the reported income.

Assuming the equity method of accounting is used, what will be the reported investment income for Birtch?

A)  $175,000.

B)  $115,000.

C)  $60,000.

D)  $162,000.

35．Assuming the equity method of accounting is used, What will be the cash flow received by Birtch, due to their investment in TRQ during 2002?

A)  $227,500.

B)  $65,400.

C)  $52,500.

D)  $118,200.

答案和详解如下：

31．The California Wines owns 40 percent of a joint venture, Western Vineyards. Vineyard's income statement for this period is as follows:

Revenues	$10,000
Less cost of goods sold	7,500
Gross profit	$2,500
Less selling and administrative expenses	500
Operating income	$2,000
Less interest expense	500
Earnings before taxes	$1,500
Less tax	600
Net income	$900

California Wines purchases 30 percent of the output of Vineyard. The amount of revenues, COGS, and net income of Vineyard to be included in the California Wine's income statement under proportionate consolidation are, respectively,

A)  $0; $0; $0.

B)  $2,400; $1,200; $360.

C)  $4,000; $3,000; $360.

D)  $2,800; $1,800; $360.

The correct answer was D)

[(0.4) ($10,000)] – [(0.4)(0.3)($10,000)] = $2,800; [(0.4)($7,500)] – [(0.4)(0.3)($10,000)] = $1,800; (0.4)($900) = $360.

32．Mashburn Company acquired 25% of the 100,000 outstanding shares of Humm Co. on January 1 for $250,000 in cash. Humm Co. earned $1 per share and had a dividend payout ratio of 40%. As of December 31, Humm Co. shares were trading in the open market at $12 per share. Calculate the income statement treatment of the Humm Co. investment as of December 31.

A)  $10,000.

B)  $75,000.

C)  $25,000.

D)  -$25,000.

The correct answer was C)

Under the equity method, the investor recognizes its pro-rata share of the affiliate's income on the income statement. Since Mashburn owns 25,000 shares of Humm and Humm earned $1, the income statement impact of the investment is $25,000.

33．On December 31, 2001 Company P invests $5,000 in Company S in exchange for 25 percent of the company. During 2002, Company S earns $2,000 and pays a dividend of $500. If Company P uses the equity method of accounting, what values will be reported on the balance sheet and income statement? How much cash will be recognized from the investment?

A)                   Balance Sheet      Income Statement   Cash

$5,375                      $500                 $125

B)                   Balance Sheet      Income Statement   Cash

$5,500                        $0                     $0

C)                   Balance Sheet      Income Statement   Cash

$5,500                    $2,000              $500

D)                   Balance Sheet      Income Statement   Cash

$5,375                    $125               $125

The correct answer was A)

The carrying value on the balance sheet = $5,375, the income statement will show $500 of income, and the cash recognized is equal to the dividend of $125.
Using the equity method, for 2001, Company P will:

§     Recognize $500 ($2000 × 0.25) on its income statement as equity in the net income of Company S.

§     Increase the investment in the Company S account on the balance sheet to $5,500, reflecting its share of the net assets of Company S.

§     Receive $125 in cash dividends from Company S and reduce its investment in Company S by that amount to reflect the decline in the net assets of Company S due to the dividend payment.

At the end of 2001, the carrying value of Company S on Company P’s balance sheet will be ($5,000 original investment + $500 proportional share of Company S earnings – $125 dividend received = $5,375).

34．Birtch Corporation acquires 25 percent of the common stock of TRQ Inc. on January 1, 2002. TRQ subsequently reports net income for the full year of $700,000, and pays a cash dividend equal to 30 percent of the reported income.

Assuming the equity method of accounting is used, what will be the reported investment income for Birtch?

A)  $175,000.

B)  $115,000.

C)  $60,000.

D)  $162,000.

The correct answer was A)

Under the equity method, dividends are not included as income to the acquirer. ($700,000 X 0.25) = $175,000 will be the reported investment income for Birtch.

35．Assuming the equity method of accounting is used, What will be the cash flow received by Birtch, due to their investment in TRQ during 2002?

A)  $227,500.

B)  $65,400.

C)  $52,500.

D)  $118,200.

The correct answer was C)

The cash flow to Birtch will be ($700,000)(0.30)(0.25) = $52,500.