Question

Question 18Not yet answeredMarked out of 1.00 Not flaggedFlag question Question text Picayune company purchased 40,000 of Stewart Company's 100,000 shares for $400,000 on 1/1/X1 when Stewart's equity consisted of $500,000 capital stock and $500,000 of retained earnings. An appraisal of Stewart's assets failed to identify any mis-valued assets. Picayune designated the Investment as a fair value investment. During year X1, Stewart earned a $100,000 net income and paid $50,000 of dividends. On 12/31/X1, Stewart's stock traded at $10.20 per share. How much investment income should Picayune recognize in year X1? Select one: a. $8,000 b. $20,000 c. $28,000 d. $40,000 e. None of the Above Question 19Not yet answeredMarked out of 1.00 Not flaggedFlag question Question text On 1/2/X2, Picayune purchased 20,000 additional shares of Stewart stock for $12 per share. What entries should Picayune make on 1/2/X2? Select one: a. Picayune should Debit the Investment for $240,000 and Credit Cash for $240,000. b. Picayune should Debit the Investment for $312,000, Credit Cash for $240,000, and Credit a Gain for $72,000. c. Picayune should Debit the Investment for $320,000, Credit Cash for $240,000, and Credit a Gain for $80,000. d. Picayune should Debit the Investment for $320,000, Credit Cash for $240,000, and Credit Picayune's Capital for $80,000. e. None of the Above Question 20Not yet answeredMarked out of 1.00 Not flaggedFlag question Question text During year X2, Stewart Company reported a net income of $150,000 and paid $40,000 of dividends. On 12/31/X2, Stewart Company's stock traded at $14 per share. Based on this information, how much Income should Picayune recognize from its Investment in Stewart? Select one: a. $36,000 b. $54,000 c. $90,000 d. $120,000 e. None of the Above

This question relies on information in the previous information about Picayune and Stewart. On its 12/31/X2 financial statements, Picayune is required to do which of the following?

Select one:

a. Picayune will be required to consolidate Stewart Company's year X1 financial statements shown on a comparative basis.

b. Picayune will be required to restate its financial statements for year X1.

c. Picayune will be required to consolidate its year X2 financial statements and present a footnote in which Stewart's results for year X1 are consolidated on a proforma basis.

d. None of the Above

Answer 1

Question 18: option (d)= $40,000.

reason:- Picayune company purchased 40,000 shares 0f Stewart company for $400,000 on 01/01/X1.

Picayune's investment=$400,000.

Stewart's equity capital stock=$500,000.

Stewart paid dividend=$50,000.

hence, Picayune's investment income in yearX1= ($50,000/$500,000)*400,000=$40,000.

Question(19) : Answer: (a): Picayune should debit the investment for $240,000 and credit cash for $240,000.

reason:On 1/2/X2, Picayune purchased 20,000 additional shares of Stewart stock for $12 per share.

so, Picayune investment on 1/2/X2 = 20,000* $12=$240,000. Investment is an asset, so picayune should debit investment for $240,000 whereas there is an outflow of cash of $240,000. Hence, picayune should credit cash for $240,000