ACCT 4034 Chapter 2 QuizA

An investment of 20 to 50 percent in another company's voting stock is reported under the:

• cost method.

• full consolidation method.

• equity method.

• fair value method.

In the case of an investment in equity securities where the investor does not have significant influence and the investment is carried at fair value, a dividend from the investee is:

• a reduction of the carrying amount of the investment.

• income to the investor in the period of declaration.

• an expense to the investor in the period of declaration.

• a direct increase to retained earnings of the investor to offset the direct decrease to retained earnings of the investee.

Under the equity method of accounting for a stock investment, the investment initially should be recorded at:

• cost minus any differential.

• cost.

• proportionate share of the fair value of the investee company's net assets.

• proportionate share of the book value of the investee company's net assets.

The carrying amount of an investment in stock correctly accounted for under the equity method is equal to:

• The original price paid to purchase the investment plus cumulative net income minus cumulative dividends declared by the investee since the date the investment was acquired.

• The original price paid to purchase the investment.

• The original price paid to purchase the investment minus cumulative net income minus cumulative dividends declared by the investee since the date the investment was acquired.

• The original price paid to purchase the investment plus cumulative net income plus cumulative dividends declared by the investee since the date the investment was acquired.

The carrying amount of an investment in stock correctly accounted for under the fair value method is equal to:

• The original price paid to purchase the investment plus cumulative net income minus cumulative dividends declared by the investee since the date the investment was acquired.

• The original price paid to purchase the investment.

• The original price paid to purchase the investment minus/plus any unrealized losses/gains on the investment

• The original price paid to purchase the investment minus cumulative net income plus cumulative dividends declared by the investee since the date the investment was acquired.