Question: Select the correct answer for each of the following questions

Select the correct answer for each of the following questions.
1. On July 1, 20X3, Barker Company purchased 20 percent of Acme Company’s outstanding common stock for $400,000 when the fair value of Acme’s net assets was $2,000,000. Barker does not have the ability to exercise significant influence over Acme’s operating and financial policies. The following data concerning Acme are available for 20X3:


In its income statement for the year ended December 31, 20X3, how much income should Barker report from this investment?
a. $20,000.
b. $32,000.
c. $38,000.
d. $60,000.
2. On January 1, 20X3, Miller Company purchased 25 percent of Wall Corporation’s common stock; no differential resulted from the purchase. Miller appropriately uses the equity method for this investment, and the balance in Miller’s investment account was $190,000 on December 31, 20X3. Wall reported net income of $120,000 for the year ended December 31, 20X3, and paid dividends on its common stock totaling $48,000 during 20X3. How much did Miller pay for its 25 percent interest in Wall?
a. $172,000.
b. $202,000.
c. $208,000.
d. $232,000.
3. On January 1, 20X7, Robohn Company purchased for cash 40 percent of Lowell Company’s 300,000 shares of voting common stock for $1,800,000 when 40 percent of the underlying equity in Lowell’s net assets was $1,740,000. The payment in excess of underlying equity was assigned to amortizable assets with a remaining life of six years. As a result of this transaction, Robohn has the ability to exercise significant influence over Lowell’s operating and financial policies. Lowell’s net income for the year ended December 31, 20X7, was $600,000. During 20X7, Lowell paid $325,000 in dividends to its shareholders. The income reported by Robohn for its investment in Lowell should be
a. $120,000.
b. $130,000.
c. $230,000.
d. $240,000.
4. In January 20X0, Farley Corporation acquired 20 percent of Davis Company’s outstanding common stock for $800,000. This investment gave Farley the ability to exercise significant influence over Davis. The book value of the acquired shares was $600,000. The excess of cost over book value was attributed to an identifiable intangible asset, which was undervalued on Davis’ balance sheet and had a remaining economic life of 10 years. For the year ended December 31, 20X0, Davis reported net income of $180,000 and paid cash dividends of $40,000 on its common stock. What is the proper carrying value of Farley’s investment in Davis on December 31, 20X0?
a. $772,000.
b. $780,000.
c. $800,000.
d.$808,000.
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  • CreatedMay 23, 2014
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