Q22. Fiduciary had an investment in Portfolio A that had a market value of $7 million accounted for as available for sale. It had

     originally charged $3 million when Portfolio A was marked-to-market in the equity account on Fiduciary's balance sheet. Now,

     it has been determined that $1 million of the $3 million charge has been permanently impaired. Fiduciary should:

A)   reclassify $1 million by charging it against the income statement while recognizing a decrease (debit) to the equity section of the balance sheet.

B)   charge an additional $1 million against the income statement while recognizing an additional charge (debit) to the equity section of the balance sheet.

C)   reclassify $1 million by charging it against the income statement while recognizing an increase (credit) to the equity section of the balance sheet.

Q23. 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)   $75,000.

B)   $25,000.

C)   $10,000.

答案和详解如下：

Q22. Fiduciary had an investment in Portfolio A that had a market value of $7 million accounted for as available for sale. It had

     originally charged $3 million when Portfolio A was marked-to-market in the equity account on Fiduciary's balance sheet. Now,

     it has been determined that $1 million of the $3 million charge has been permanently impaired. Fiduciary should:

A)   reclassify $1 million by charging it against the income statement while recognizing a decrease (debit) to the equity section of the balance sheet.

B)   charge an additional $1 million against the income statement while recognizing an additional charge (debit) to the equity section of the balance sheet.

C)   reclassify $1 million by charging it against the income statement while recognizing an increase (credit) to the equity section of the balance sheet.

Correct answer is C)

When there is an impairment of a previously realized charge that only affected the equity section of the balance sheet, a reclassification charge must be made to transfer the permanent impairment charge to the income statement. This accounting entry is a charge against the income statement with a corresponding credit or increase to the equity section.

Q23. 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)   $75,000.

B)   $25,000.

C)   $10,000.

Correct answer is B)

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.

see daan