1. GAAP provides indicators of an investors inability to exercise significant influence over an investee. Which of...

Question:

1. GAAP provides indicators of an investor’s inability to exercise significant influence over an investee. Which of the following is not included among those indicators?

a. Surrender of significant stockholder rights by agreement

b. Concentration of majority ownership

c. Failure to obtain representation on the investee’s board of directors

d. Inability to control the investee’s operating policies

2. A 20 percent common stock interest in an investee:

a. Must be accounted for under the equity method

b. Is accounted for by the cost method because over 20 percent is required for the application of the equity method

c. Is presumptive evidence of an ability to exercise significant influence over the investee

d. Enables the investor to apply either the cost or the equity method

3. The cost of a 25 percent interest in the voting stock of an investee that is recorded in the investment account includes:

a. Cash disbursed and the book value of other assets given or securities issued, other than the cost of registering and issuing equity securities

b. Cash disbursed and the book value of other assets given or securities issued

c. Cash disbursed and the fair value of other assets given or securities issued, other than the cost of registering and issuing equity securities

d. Cash disbursed and the fair value of other assets given or securities issued

4. The underlying equity of an investment at acquisition:

a. Is recorded in the investment account under the equity method

b. Minus the cost of the investment is assigned to goodwill

c. Is equal to the fair value of the investee’s net assets times the percentage acquired

d. Is equal to the book value of the investee’s net assets times the percentage acquired

5. Jar Corporation is a 25 percent-owned equity investee of Mar Corporation. During the current year, Mar receives $12,000 in dividends from Jar. How does the $12,000 dividend affect Mar’s financial position and results of operations?

a. Increases assets

b. Decreases investment

c. Increases income

d. Decreases income

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