Quiz Instructions Your Full Name: Your Email Address: The Email address of an instructor to mail your quiz results: 1. Kerry Corporation acquires the publicly traded debt of Jett Corporation on December 31, Year 1 as a temporary investment of excess cash. The securities mature in 4 years. How will the securities be recorded on Kerry's December 31, Year 1 financial statement? a. as long-term investment in marketable equity securities b. as current assets-marketable securities c. as bonds payable d. as short-term investment in marketable equity securities 2. Which of the following items appears in the balance sheet at amortized acquisition cost? a. debt securities held to maturity b. trading securities c. available-for-sale securities d. securities available for liquidation 3. If a corporation has a minority passive investment, it must account for that investment using a. the equity method b. the consolidated method c. the lower?of?cost?or?market method d. the market value method 4. In Year 2, ABC Corp. acquired a 15% interest in XYZ, Inc., for $50,000. During the year, XYZ paid dividends of $10,000 and had net income of $30,000. ABC sold the shares of XYZ for $65,000 cash. What entry will ABC make to record the sale? a. Cash 65,000 Gain on Sale 12,000 Investment in XYZ 53,000 b. Cash 65,000 Gain on Sale 9,000 Investment in XYZ 56,000 c. Cash 65,000 Additional Paid-in Capital 15,000 Investment in XYZ 50,000 d. Cash 65,000 Gain on Sale 15,000 Investment in XYZ 50,000 5. A minority, active investment is generally a. an investment in another company of less than 15% b. an investment in another company's stock of between 15% and 60% c. an investment in another company's stock of between 20% and 50% d. dependent upon management's intent 6. If BG Company purchases a minority active interest in LG Company for $150,000, BG will make which of the following entries to record the purchase using the equity method? a. Equity in LG Company 150,000 Cash 150,000 b. Investment in LG Company 150,000 Cash 150,000 c. Deferred Revenue-LG Company 150,000 Cash 150,000 d. No entry is made; the companies are consolidated. 7. Purl Co. purchased 40% of the stock of Stitch Co. in Year 1 for $100,000. Stitch had net income in Year 1 of $50,000 and net income in Year 2 of $30,000. Stitch also paid total dividends of $20,000 in Year 2. On January 1, Year 3, Purl Co. sold its investment in Stitch Co. to Shoemaker Capital Corporation (SCC) for $130,000. What entry would Purl Co. make to record the sale of Stitch Co.? a. Cash 130,000 Gain on Sale 6,000 Investment in Stitch 124,000 b. Cash 130,000 Loss on Sale 2,000 Investment in Stitch 132,000 c. Cash 130,000 Loss on Sale 10,000 Investment in Stitch 140,000 d. Cash 130,000 Loss on Sale 30,000 Investment in Stitch 160,000 8. Management and shareholders may desire to have legally separate corporations because a. it may insulate a profitable corporation from an unprofitable corporation's insolvency and creditors b. it may simplify compliance with state tax and regulation requirements c. it may allow a company to enter a new line of business with a minimum of investment and risk d. all of the above 9. An intercompany transaction is a transaction between a. two subsidiary corporations only b. the subsidiaries and the parent company only c. any two members of a consolidated entity d. any two members of a consolidated entity, conducted at arm's-length Copyright © 2003 South-Western. All Rights Reserved.
Copyright © 2003 South-Western. All Rights Reserved.