ACCT 405 Week 1 Homework
Problems 1, 3, 5, 9, 10 and 11
1) When an investor uses the equity method to account for investments in common stock, cash dividends received by the investor from the investee should be recorded as
3) Sisk Company has owned 10 percent of Maust, Inc., for the past several years. This ownership did not allow Sisk to have significant influence over Maust. Recently, Sisk acquired an additional 30 percent of Maust and now will use the equity method. How will the investor report this change?
5) When an investor elects the fair-value option for a significant influence investment, cash dividends received by the investor from the investee should be recorded as
9) Goldman Company reports net income of $140,000 each year and pays an annual cash dividend of $50,000. The company holds net assets of $1,200,000 on January 1, 2012. On that date, Wallace purchases 40 percent of the outstanding stock for $600,000, which gives it the ability to significantly influence Goldman. At the purchase date, the excess of Wallace’s cost over its proportionate share of Goldman’s book value was assigned to goodwill. On December 31, 2014, what is the Investment in Goldman Company balance (equity method) in Wallace’s financial records?
10) Perez, Inc., applies the equity method for its 25 percent investment in Senior, Inc. During 2013, Perez sold goods with a 40 percent gross profit to Senior. Senior sold all of these goods in 2013. How should Perez report the effect of the intra-entity sale on its 2013 income statement?
11) Panner, Inc., owns 30 percent of Watkins and applies the equity method. During the current year, Panner buys inventory costing $54,000 and then sells it to Watkins for $90,000. At the end of the year, Watkins still holds only $20,000 of merchandise. What amount of unrealized gross profit must Panner defer in reporting this investment using the equity method?