Question

1. Allico Co. purchased 300,000 shares of common stock in IHSL, Inc. for $50 per share on January 2, 2020, which represents 40% of IHSL, Inc.'s outstanding shares. During 2020, IHSL, Inc. paid cash dividends of $300,000 and reported net income of $1,000,000. At of the end of 2020, IHSL, Inc. s stock price had dropped to $49 per share. What should appear on Allico Co.'s income statement in 2020 because of this investment? (NIE 4)

   		($300,000)
   		($180,000)
   		$120,000
   		$400,000

5 points   

QUESTION 20

1. (5 points) On January 3, 2019, Clifton Co. acquires $721,000 of Adam Company's 10-year, 10% bonds at a price of $678,539 to yield 11%. Interest is payable each year on December 31. The bonds are classified as held-to-maturity. Assuming that Clifton Co. uses the effective- interest method, what is the amount of interest revenue (rounded) that would be recognized in 2020 related to these bonds? (NIE 2)

   		$2,819
   		$72,100
   		$74,639
   		$74,919

5 points   

QUESTION 21

1. (5 points) Which of the following is NOT true about the structure of a defined contribution pension plan? (IO 10)

   		A defined contribution plan typically includes a contribution by the employees.
   		A defined contribution plan provides a set payout amount during retirement.
   		A defined contribution is often referred to as a 401k.
   		A defined contribution plan belongs to the employee.

Answer 1

Ans 1.

The dividend income received by Allico from the investment is 40% x $300,000 = $120,000. Hence, the amount reflected on Allico Co's income statement related to the IHSL investment will be $120,000. Note that any fair value adjustments wrt the investment are reflected on the balance sheet.

Ans 2.

The bond has been issued ata discount. Based on the bond amortization schedule created, the interest revenue recorded by Clifton CO. in 2020 will be $74919

Ans 3.

A defined contribution plan is a retirement plan for the employees sponsored by the employer which is funded by the eployer, employee or both, The income dervied form the plan is dependent on the investement choices made and is not set or fixed in nature. Hence option "B" is incorrect. 401k is a popular defined contrbution plan