10. Naicy Drew company ones 30% interest (Equity M. Coeporatlon Method) in the s
ID: 2601341 • Letter: 1
Question
10. Naicy Drew company ones 30% interest (Equity M. Coeporatlon Method) in the sdeck of Pinlcy A) 525,000 825,000 in dividrnds, and B) $30.000 Cy $24,000, D) $22,300. commss stock of an investes oompany is purchased as a long-tem the appropriate method of accounting for the investmeet ss A) the Cost mothod 8) the Equity method. the prepurution of Consolidated Financial Statements detemned by greement with whomever owns the remaining 90%% of tha stock. 12, On January 1, 2011, Rartiey Corp, paid 5300,000 for 100,000 shares of Ouk Companey's represents 40% of Oak's outstanding common stock. Oak reported et Hook lavesteent la Oak Conspany on its December 31,2011,balance common stock, which ner inc coe z,00 and aid cash dividends of 560,000 during 2011. Bartley shoxld sheet at: (Equity Method) A) 5800,000 B) 5744,000 C) $824,000 D) $856,000 13. Aecounts reeivable (/R) arising trom sales to customers amounted to $80,000 (B1) and $70,000 (E1) at the beginning (BI) and end (El) of the year, respectively.Net income (NI) reported on the income statement for the year was $280,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash hows is (Cash Flow OPS) A) $280,000 B) $290,000. C) $350,000 D) $270,000. Page 3 were entExplanation / Answer
10. Answer: Option D) $22,500
Nancy Drew Company’s share in Finley Corporations:
Dividends = 30% x $25,000 = $7,500
Net income = 30% x $100,000 = $30,000
Under equity method, share in dividends will reduce the book value of Nancy Drew’s investment in Finley while share in net income will increase the same.
Thus, there will be a net increase in investment in Finley by $22,500 ($30,000 - $7,500).
11. Answer: Option A) the Cost method
Investments of less than 20% in an investee company’s outstanding common stock are accounted for by using the cost method.
The equity method is used for investments between 20% to 50% and consolidated financial statements are prepared if investment is more than 50% and the investor is considered to have control over the investee company.
12. Answer: Option D) $856,000
Barley Company’s share in Oak Company’s:
Net income = 40% x $200,000 = $80,000
Dividends = 40% x $60,000 = $24,000
Under equity method, share in dividends will reduce the book value of Barley Company’s investment in Oak Company while share in net income will increase the same.
Net Book Investment in Oak Company on December 31, 2011 = $800,000 + $80,000 - $24,000 = $856,000
13. Answer: Option B) $290,000
Cash flow from operating activities = Net income (+/-) Decrease/Increase in Accounts receivables
Accounts receivable (BI) $80,000 – Accounts receivable (EI) $70,000 = Decrease in Accounts receivable $10,000
Cash flow from operating activities = $280,000 + $10,000 = $290,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.