Question

1. In​ 2017, Gigajoule Corporation used the equity method to account for a​ 25% ownership interest...

1. In​ 2017, Gigajoule Corporation used the equity method to account for a​ 25% ownership interest in Megawatt Corporation. If Megawatt Corporation reports​ $400,000 of income and pays​ $80,000 of dividends in​ 2017, the net effect of the entries made by Gigajoule Corporation in 2017 will be​ to:

A.

reduce the Investment account by​ $320,000

B.

increase the Investment account by​ $320,000

C.

reduce the Investment account by​ $80,000

D.

increase the Investment account by​ $80,000

2. Investments at fair value through other comprehensive income with a cost of​ $22,000 have a current market value of​ $22,600. The adjusting entry will require​ a:

A.

credit to Gain on Investment for​ $600

B.

credit to other comprehensive income for​ $600

C.

debit to Investments for​ $22,600

D.

credit to Investments for​ $600

3. Barking Power Company accounts for its​ 35% investment in Pipeline Corporation under the equity method of accounting. The investment was made on January​ 1, 2017, at a cost of​ $625,000. Pipeline Corporation reported net income of​ $85,000 for the year ended December​ 31, 2017, and paid total dividends of​ $20,000 during 2017. On December​ 31, 2017, after making all appropriate​ entries, the balance in Barking Power​ Company's

Long−Term

Investment account will​ equal:

A.

​$690,000

B.

​$583,000

C.

​$647,750

D.

​$602,250

4. When a premium on a bond investment is amortized by the company holding the​ investment:

A.

the amount of cash received as an interest payment will be reduced

B.

the amount of cash received as an interest payment will be increased

C.

Interest Revenue will be debited

D.

companies normally credit a separate account called Premium on Investments

Business   Accounting   
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Homework Answers

Answer #1

Answer 3:

Cost of Acquisition ==> 625,000

Share in net income ==> 85,000 * 35% = 29,750

Share in dividend declared ==> 20,000 * 35 = 7000

Investment ==> 625,000+29750-7000 ==> 647,750

Optiom C is the correct answer

C. ​$647,750

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