Question

1)An investor in trading securities has the following information available at December 31, 2012:Market value of trading securities$8,000Acquisition cost of trading securities$9,000How does the investor report the change in market value on the trading securities at December 31, 2012?

A) unrealized loss of $1,000 on income statement

B) unrealized gain of $1,000 on income statement

C) $1,000 is added to other comprehensive income account on the balance sheet

D) $1,000 is subtracted from the other comprehensive income account on the balance sheet

2)Arizona Company has 40,000 shares of its common stock outstanding. Mexico Company owns 5,000 shares of Arizona Company's stock. Which of the following methods should Mexico Company use to account for its investment in Arizona Company?

A) market-value

B) equity

C) consolidated

D) available-for-sale

3)Wyoming Company has 40,000 shares of its common stock outstanding. Dakota Company owns 35,000 shares of Wyoming Company's stock. Which of the following methods should Dakota Company use to account for its investment in Wyoming Company?

A) market-value

B) equity

C) consolidated financial statements

D) cost

4)California Company has 40,000 shares of its common stock outstanding. Utah Company owns 15,000 shares of California Company's stock. Which of the following methods should Utah Company use to account for its investment in California Company?

A) market-value

B) equity

C) consolidated

D) available-for-sale

5)An investor holds 1% of the outstanding stock of an investee. The investor plans to hold the stock for a long time. The investor reports the dividends received from the stock as ________.

A) an increase in the investment account

B) a decrease in the investment account

C) dividend revenue on the income statement

D) equity in earnings of the investee on the income statement

Answer 1

Ans.

1. Option A

Gain loss on trading securities is transferred to income statement

2. Option A

Mexico company share=5000/40000=12.5%

Mexico company is not controlling neither having significant influence, so it will account for shares at market value

3. Option C

Dakota shares=35000/40000=87.5%

Dakota company is controlling Wyoming, so it will prepare consolidated financial statement

4. Option B

Utah shares=15000/40000=37.5%

Utah company is having significant influence, so it will account for shares using equity method.

5.Option D

Dividend is reported in income statement.