$44.$ Topic: Equity method investments

LO $2$

Acton Company uses the equity method to report its investment in $35\%$ of the stock of Bates

Company. Its original investment cost exceeded $35\%$ of the book value of Bates by a large

amount. Acton is computing equity in net income of Bates for the current year, which is five years

after the acquisition. Which situation below is most likely to require Acton to adjust the equity in

net income number for the current year, for write$-$offs of basis differences? Attribute the

difference to:

a$.$ Goodwill

b$.$ Inventory reported using FIFO

c$.$ Databases with a $3-$year life

d$.$ Plant assets with a $20-$year life

$45.$ Topic: Equity investments

LO $2$

A company has a $25\%$ interest in X Company stock and a $15\%$ interest in Y Company stock. The

company is able to exercise significant influence over Y Company$$s decisions but not over X

Company$$s decisions. Which of the two investments should be reported using the equity

method?

a$.$ Both X and Y

b$.$ X only

c$.$ Y only

d$.$ Neither X or Y

$46.$ Topic: Impairment of equity method investments

LO $2$

Impairment losses on equity method investments are:

a$.$ Not reported

b$.$ Reported in other comprehensive income

c$.$ Reported as a direct adjustment to beginning retained earnings

d$.$ Reported in income

$47.$ Topic: Impairment of equity method investments

LO $2$

Impairment losses on equity method investments are:

a$.$ Reported in income if considered other than temporary

b$.$ Reversed as gains if the investment$$s market value rises

c$.$ Reclassified from OCI to income if the investment$$s value rises

d$.$ Not reported.

$48.$ Topic: Impairment of equity method investments

LO $2$

The U$.$S$.$ GAAP impairment test for equity method investments requires recognition of

impairment losses when:

a$.$ Fair value is less than cost and the decline is other than temporary.

b$.$ A significant loss event occurs.

c$.$ Fair value is less than carrying value and the decline in value is other than temporary.

d$.$ Expected credit loss