1.		Which of the following will be debited to the Investment account when the equity method is used?
		a. b.	Investee net losses. Investee net profits.
		c. d.	Investee declaration of dividends. Depreciation of excess purchase cost attributable to investee equipment.

LO1

2.		A parent company uses the equity method to account for its wholly-owned subsidiary. The company correctly uses this method and has fully reflected all items of subsidiary gain, loss, income, deductions, and dividends. If the parent company is preparing the consolidation working papers, which of the following will be the correct working paper procedure for the Investment account?
		a.	A debit for a subsidiary loss and a credit for dividends received.
		b.	A credit for subsidiary income and a debit for dividends received.
		c.	A debit for subsidiary dividends received and a credit for a subsidiary loss.
		d.	A credit for a subsidiary loss and a credit for dividends received.

LO1

3.		A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary but does not control the subsidiary because it is in bankruptcy. Which of the following statements is correct?
		a.	The parent corporation must still prepare consolidated financial statements for the economic entity.
		b.	The parent corporation must stop using the equity method of accounting for the subsidiary and start using the cost method.
		c.	The parent company may continue to use the equity method but the subsidiary cannot be consolidated.
		d.	The parent company would suspend the operation of the Investment account until notified by the bankruptcy court that the subsidiary has emerged from bankruptcy.

Please explain

Answer rating: 100% (QA)

Answer to 1st The correct answer is b Investee net profits The follo... View the full answer