Question 1

A controlling influence over the investee is based on the investor owning voting shares exceeding:

Accepted Answer

Owning more than 50% of the voting shares typically gives an investor controlling influence over the investee, allowing them to make key decisions.

Question 2

The method used to account for non-strategic investments is the:

Accepted Answer

The fair value method is typically used for non-strategic investments where the investor does not have significant influence over the investee.

Question 3

Strategic investments:

Accepted Answer

The answer of Strategic investments:
...

Question 4

Music City paid $37,800 plus a broker's fee of $525 to acquire 8% Airport Corp bonds with a $40,000 maturity value. Music City intends to hold the bonds to maturity. The proceeds Music City receives at maturity will be:

Accepted Answer

At maturity, Music City will receive the maturity value of the bonds, which is $40,000. The broker's fee and purchase price do not affect the maturity proceeds.

Question 5

Micron owns 16% of JVT as an investment in an associate. JVT paid $78,000 in total dividends to its shareholders. Micron should record a:

Accepted Answer

The answer of Micron owns 16% of JVT as an...

Question 6

Micron purchased 40,000 Martok Corp common shares. This represents 40% of the outstanding shares. The purchase price was $232,000. The entry to record thetransaction includes a:

Accepted Answer

The answer of Micron purchased 40,000 Martok Corp common shares....

Question 7

Investments in non-strategic equity investments:

Accepted Answer

Non-strategic equity investments include purchase costs and any transaction costs as part of their initial measurement.

Question 8

Debt investments:

Accepted Answer

Debt investments are typically accounted for using the amortized cost method, reflecting a creditor relationship rather than ownership.

Question 9

On January 1, X Corporation purchased 80% of Y Corporation for $250,000. On May 20, Y Corporation declared total dividends of $30,000. At year-end Y Corporationreported profit of $150,000. The balance in X Corporation's Investment in Y Corporation account at December 31 should be:

Accepted Answer

The initial investment is $250,000. X Corporation's share of Y's profit is 80% of $150,000, which is $120,000. X Corporation's share of the dividends is 80% of $30,000, which is $24,000. The balance is $250,000 + $120,000 - $24,000 = $346,000.

Question 10

The balance in the "Investment Income" account on Ildiko's Income Statement for the year ended December 31, 2017 is:

Accepted Answer

The balance in the "Investment Income" account on Ildiko's Income Statement for the year ended December 31, 2017 is $29,750. This is because the "Investment Income" account is a revenue account, and revenue accounts have normal debit balances. The balance in the "Investment Income" account is the total amount of revenue that Ildiko has earned from its investments during the year.

Question 11

As an investment in associates, Music City purchased 2,000 Asta Corp common shares for $143,000. Music City also paid $375 in commissions on the transaction. The entry to record the transaction would include a:

Accepted Answer

The total cost of the investment includes both the purchase price and the commission, so the debit to Investment in Asta Common Shares should be for the total amount of $143,375 ($143,000 + $375).

Question 12

The balance in the "Investment in Associate - Rance Ltd" account on Ildiko's balance sheet at December 31, 2017 is:

Accepted Answer

The balance in the "Investment in Associate - Rance Ltd" account on Ildiko's balance sheet at December 31, 2017 is $61,750. This is because the investment was initially recorded at $60,000, and Ildiko's share of Rance Ltd.'s net income for the year was $1,750.

Question 13

Strategic investments that occur when the investor can significantly influence the strategic operating, investing, and/or financing policies of the investee are called:

Accepted Answer

Investments in associates occur when the investor has significant influence over the investee, typically indicated by owning 20% to 50% of the voting stock.

Question 14

Music City paid $37,800 plus a broker's fee of $525 to acquire 8% Airport Corp bonds with a $40,000 maturity value. Music City intends to hold the bonds to maturity. Thejournal entry to record acquisition of the bonds includes a debit to Long-Term Investment in Airport Bonds for:

Accepted Answer

The debit to Long-Term Investment in Airport Bonds should include both the purchase price and the broker's fee, totaling $38,325 ($37,800 + $525).

Question 15

Micron owns 40% of the outstanding Martok Corp common shares. Martok paid$97,000 in total cash dividends to its shareholders. Micron's entry to record the transaction should include a:

Accepted Answer

Micron owns 40% of Martok Corp common shares, so Micron's share of the cash dividends is 40% of $97,000 = $38,800. The entry to record the transaction should include a credit to Investment in Martok Common Shares for $38,800.

Question 16

Non-strategic investments are usually:

Accepted Answer

Non-strategic investments are typically short-term in nature, often involving frequent buying and selling, and are expected to be converted into cash within a year, making all the given options correct.

Question 17

Music City owns Airport Corp bonds as a short-term equity investment with a carrying value of $65,000. The current market value is $68,500. Music City should record a:

Accepted Answer

Music City should recognize the increase in market value as investment income, which is recorded as a credit to Investment Income for the $3,500 gain.

Question 18

Non-strategic equity investments are accounted for using the:

Accepted Answer

Non-strategic equity investments are typically accounted for using the fair value method, where changes in fair value are recognized in the income statement.

Question 19

Investments in associates:

Accepted Answer

Investments in associates are typically accounted for using the equity method, where the investor has significant influence over the associate, usually indicated by ownership of 20% to 50% of the voting stock.

Question 20

Micron owns 35% of Martok Corp common shares, and is considered to havesignificant influence. Martok paid a total of $47,000 in common dividends. Micron would record the dividend transaction with a:

Accepted Answer

The answer of Micron owns 35% of Martok Corp common...

Quiz 15: Accounting for Debt and Share Investments