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Reading 21:Intercorporate Investments LOS d ~ Q6-10

Q6. Which of the following methods of accounting for investments will reflect the highest net income on a company’s income

    statement?

A)   Consolidation method.

B)   Equity method.

C)   Both methods report the same net income.

Q7. A company reports an intercorporate investment using the consolidation method. Which of the following statements is most

    accurate?

A)   The use of the consolidation method by a company will generally report the most favorable results.

B)   The use of the consolidation method by a company will generally report the least favorable results.

C)   The use of the proportionate consolidation method by a company will generally report the most favorable results.

Q8. Carter Schmitz purchased 200 shares of Intelismart at $21 a share in June 2006 and intends to actively trade 80 shares in the

near future and hold the remaining 120 shares as available for sale securities. Intelismart's closing price was $26 on December

31, 2006, and Schmitz did not sell any of its shares.

What amount should Schmitz report on this investment under the income statement?

A)   $400.

B)   $1,000.

C)   $600.

Q9. The Anderson Company acquired 100,000 shares of the Birschbach Company on January 1, 2000, at $25 per

   share. The market price of a share of Birschbach stock on December 31, 2000, was $35 per share. During 2000,

  Birschbach paid dividends of $1.50 per share and had earnings of $2.50 per share.

If the Anderson Company accounts for the Birschbach shares as trading securities, the carrying amount of these shares on Anderson's balance sheet at the end of 2000 is:

A)   $2.6 million.

B)   $2.5 million.

C)   $3.5 million.

Q10. If Anderson Company accounts for the Birschbach Company shares as securities available-for-sale, the carrying

     amount of these shares on Anderson's balance sheet at the end of 2000 is:

A)   $2.6 million.

B)   $2.5 million.

C)   $3.5 million.

答案和详解如下:

Q6. Which of the following methods of accounting for investments will reflect the highest net income on a company’s income

    statement?

A)   Consolidation method.

B)   Equity method.

C)   Both methods report the same net income.

Correct answer is C)         

Both methods will report the same net income.

Q7. A company reports an intercorporate investment using the consolidation method. Which of the following statements is most

    accurate?

A)   The use of the consolidation method by a company will generally report the most favorable results.

B)   The use of the consolidation method by a company will generally report the least favorable results.

C)   The use of the proportionate consolidation method by a company will generally report the most favorable results.

Correct answer is B)

The equity method will provide the most favorable results, while the consolidation method will provide the least favorable results.

Q8. Carter Schmitz purchased 200 shares of Intelismart at $21 a share in June 2006 and intends to actively trade 80 shares in the

near future and hold the remaining 120 shares as available for sale securities. Intelismart's closing price was $26 on December

31, 2006, and Schmitz did not sell any of its shares.

What amount should Schmitz report on this investment under the income statement?

A)   $400.

B)   $1,000.

C)   $600.

Correct answer is A)

The unrealized gain on the 120 shares available for sale is $600 (26 - 21 = 5 × 120 shares). There is also an unrealized gain of $400 (5 × 80) related to the 80 shares that are trading securities which would be reported on the income statement. For trading securities, realized and unrealized gains and losses are reported on the income statement. For available for sale securities, only realized gains and losses are reported on the income statement.

Q9. The Anderson Company acquired 100,000 shares of the Birschbach Company on January 1, 2000, at $25 per

   share. The market price of a share of Birschbach stock on December 31, 2000, was $35 per share. During 2000,

  Birschbach paid dividends of $1.50 per share and had earnings of $2.50 per share.

If the Anderson Company accounts for the Birschbach shares as trading securities, the carrying amount of these shares on Anderson's balance sheet at the end of 2000 is:

A)   $2.6 million.

B)   $2.5 million.

C)   $3.5 million.

Correct answer is C)

Trading securities are measured at fair market value.

(100,000)($35) = $3,500,000

Q10. If Anderson Company accounts for the Birschbach Company shares as securities available-for-sale, the carrying

     amount of these shares on Anderson's balance sheet at the end of 2000 is:

A)   $2.6 million.

B)   $2.5 million.

C)   $3.5 million.

Correct answer is C)

Available-for-sale securities are measured at fair market value.

(100,000)($35) = $3,500,000

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回复:(mayanfang1)[2009] Session 5 - Reading 21:...

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