Cost Method - CPA Financial Accounting and Reporting (FAR)
Card 1 of 24
Carmen, Inc purchased 15% of Loman's 60,000 outstanding shares of common stock on January 1, Year 2, for $80,000. On December 31, Year 2, Carmen purchased an additional 12,000 shares of common stock for $150,000. Loman reported $75,000 in earnings for Year 2. There was no goodwill as a result of either transaction, and Loman didn't issue any additional shares of stock in Year 2. There was no unrealized holding gain or loss reported in other comprehensive income for this investment. What amount should Carmen report in its investment account at the end of Year 2?
Carmen, Inc purchased 15% of Loman's 60,000 outstanding shares of common stock on January 1, Year 2, for $80,000. On December 31, Year 2, Carmen purchased an additional 12,000 shares of common stock for $150,000. Loman reported $75,000 in earnings for Year 2. There was no goodwill as a result of either transaction, and Loman didn't issue any additional shares of stock in Year 2. There was no unrealized holding gain or loss reported in other comprehensive income for this investment. What amount should Carmen report in its investment account at the end of Year 2?
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Carmen will use the cost method to account for this investment in Year 1, meaning that the ending balance in the investment account will just be the cost of the stock purchases ($80K + $150K). Because the second purchase brought Carmen's ownership percentage up from 15% to 35%, they will use the equity method beginning in Year 3, but Year 2 will still be accounted for using the cost method.
Carmen will use the cost method to account for this investment in Year 1, meaning that the ending balance in the investment account will just be the cost of the stock purchases ($80K + $150K). Because the second purchase brought Carmen's ownership percentage up from 15% to 35%, they will use the equity method beginning in Year 3, but Year 2 will still be accounted for using the cost method.
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Which of the following is not true regarding the cost method for investments?
Which of the following is not true regarding the cost method for investments?
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If the investor has the ability to exercise significant influence over an investee, it should account for its investment using the equity method, regardless of the percentage of ownership.
If the investor has the ability to exercise significant influence over an investee, it should account for its investment using the equity method, regardless of the percentage of ownership.
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The Bowman Company purchases 10,000 shares of Dalton Company's 300,000 outstanding shares at January 1, Year 2, for $18.34 per share plus a commission of $640. During Year 2, Dalton pays dividends of $2 per share. How much will Bowman report as its investment in Dalton and as dividend income in Year 2?
The Bowman Company purchases 10,000 shares of Dalton Company's 300,000 outstanding shares at January 1, Year 2, for $18.34 per share plus a commission of $640. During Year 2, Dalton pays dividends of $2 per share. How much will Bowman report as its investment in Dalton and as dividend income in Year 2?
Tap to reveal answer
Bowman's investment will be accounted for at cost ($18.34 per share x 10K shares + commission of $640). Under the cost method, they will recognize dividend income of $2 per share x 10K shares.
Bowman's investment will be accounted for at cost ($18.34 per share x 10K shares + commission of $640). Under the cost method, they will recognize dividend income of $2 per share x 10K shares.
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The valuation of goodwill is a calculation in a business calculation:
The valuation of goodwill is a calculation in a business calculation:
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The amount of goodwill recorded on the balance sheet by an acquiring firm for a business combination represents the excess of the price paid over the fair value of the identifiable net assets acquired.
The amount of goodwill recorded on the balance sheet by an acquiring firm for a business combination represents the excess of the price paid over the fair value of the identifiable net assets acquired.
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A company has a 24% investment in another firm that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?
A company has a 24% investment in another firm that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?
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A company owning between 20-50% in another firm in which the investment is accounted for using the equity method is considered as having significant influence over the company and is required to disclose the company's accounting policy for the investment.
A company owning between 20-50% in another firm in which the investment is accounted for using the equity method is considered as having significant influence over the company and is required to disclose the company's accounting policy for the investment.
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Of the following values, which should be disclosed for the purposes of reporting financial instruments such as debt or equity securities?
Of the following values, which should be disclosed for the purposes of reporting financial instruments such as debt or equity securities?
Tap to reveal answer
Both of these values must be reported for a company that holds financial instruments otherwise users of the statements would not be able to see gain or losses that the company incurs.
Both of these values must be reported for a company that holds financial instruments otherwise users of the statements would not be able to see gain or losses that the company incurs.
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Carmen, Inc purchased 15% of Loman's 60,000 outstanding shares of common stock on January 1, Year 2, for $80,000. On December 31, Year 2, Carmen purchased an additional 12,000 shares of common stock for $150,000. Loman reported $75,000 in earnings for Year 2. There was no goodwill as a result of either transaction, and Loman didn't issue any additional shares of stock in Year 2. There was no unrealized holding gain or loss reported in other comprehensive income for this investment. What amount should Carmen report in its investment account at the end of Year 2?
Carmen, Inc purchased 15% of Loman's 60,000 outstanding shares of common stock on January 1, Year 2, for $80,000. On December 31, Year 2, Carmen purchased an additional 12,000 shares of common stock for $150,000. Loman reported $75,000 in earnings for Year 2. There was no goodwill as a result of either transaction, and Loman didn't issue any additional shares of stock in Year 2. There was no unrealized holding gain or loss reported in other comprehensive income for this investment. What amount should Carmen report in its investment account at the end of Year 2?
Tap to reveal answer
Carmen will use the cost method to account for this investment in Year 1, meaning that the ending balance in the investment account will just be the cost of the stock purchases ($80K + $150K). Because the second purchase brought Carmen's ownership percentage up from 15% to 35%, they will use the equity method beginning in Year 3, but Year 2 will still be accounted for using the cost method.
Carmen will use the cost method to account for this investment in Year 1, meaning that the ending balance in the investment account will just be the cost of the stock purchases ($80K + $150K). Because the second purchase brought Carmen's ownership percentage up from 15% to 35%, they will use the equity method beginning in Year 3, but Year 2 will still be accounted for using the cost method.
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Which of the following is not true regarding the cost method for investments?
Which of the following is not true regarding the cost method for investments?
Tap to reveal answer
If the investor has the ability to exercise significant influence over an investee, it should account for its investment using the equity method, regardless of the percentage of ownership.
If the investor has the ability to exercise significant influence over an investee, it should account for its investment using the equity method, regardless of the percentage of ownership.
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The Bowman Company purchases 10,000 shares of Dalton Company's 300,000 outstanding shares at January 1, Year 2, for $18.34 per share plus a commission of $640. During Year 2, Dalton pays dividends of $2 per share. How much will Bowman report as its investment in Dalton and as dividend income in Year 2?
The Bowman Company purchases 10,000 shares of Dalton Company's 300,000 outstanding shares at January 1, Year 2, for $18.34 per share plus a commission of $640. During Year 2, Dalton pays dividends of $2 per share. How much will Bowman report as its investment in Dalton and as dividend income in Year 2?
Tap to reveal answer
Bowman's investment will be accounted for at cost ($18.34 per share x 10K shares + commission of $640). Under the cost method, they will recognize dividend income of $2 per share x 10K shares.
Bowman's investment will be accounted for at cost ($18.34 per share x 10K shares + commission of $640). Under the cost method, they will recognize dividend income of $2 per share x 10K shares.
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The valuation of goodwill is a calculation in a business calculation:
The valuation of goodwill is a calculation in a business calculation:
Tap to reveal answer
The amount of goodwill recorded on the balance sheet by an acquiring firm for a business combination represents the excess of the price paid over the fair value of the identifiable net assets acquired.
The amount of goodwill recorded on the balance sheet by an acquiring firm for a business combination represents the excess of the price paid over the fair value of the identifiable net assets acquired.
← Didn't Know|Knew It →
A company has a 24% investment in another firm that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?
A company has a 24% investment in another firm that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?
Tap to reveal answer
A company owning between 20-50% in another firm in which the investment is accounted for using the equity method is considered as having significant influence over the company and is required to disclose the company's accounting policy for the investment.
A company owning between 20-50% in another firm in which the investment is accounted for using the equity method is considered as having significant influence over the company and is required to disclose the company's accounting policy for the investment.
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Of the following values, which should be disclosed for the purposes of reporting financial instruments such as debt or equity securities?
Of the following values, which should be disclosed for the purposes of reporting financial instruments such as debt or equity securities?
Tap to reveal answer
Both of these values must be reported for a company that holds financial instruments otherwise users of the statements would not be able to see gain or losses that the company incurs.
Both of these values must be reported for a company that holds financial instruments otherwise users of the statements would not be able to see gain or losses that the company incurs.
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Carmen, Inc purchased 15% of Loman's 60,000 outstanding shares of common stock on January 1, Year 2, for $80,000. On December 31, Year 2, Carmen purchased an additional 12,000 shares of common stock for $150,000. Loman reported $75,000 in earnings for Year 2. There was no goodwill as a result of either transaction, and Loman didn't issue any additional shares of stock in Year 2. There was no unrealized holding gain or loss reported in other comprehensive income for this investment. What amount should Carmen report in its investment account at the end of Year 2?
Carmen, Inc purchased 15% of Loman's 60,000 outstanding shares of common stock on January 1, Year 2, for $80,000. On December 31, Year 2, Carmen purchased an additional 12,000 shares of common stock for $150,000. Loman reported $75,000 in earnings for Year 2. There was no goodwill as a result of either transaction, and Loman didn't issue any additional shares of stock in Year 2. There was no unrealized holding gain or loss reported in other comprehensive income for this investment. What amount should Carmen report in its investment account at the end of Year 2?
Tap to reveal answer
Carmen will use the cost method to account for this investment in Year 1, meaning that the ending balance in the investment account will just be the cost of the stock purchases ($80K + $150K). Because the second purchase brought Carmen's ownership percentage up from 15% to 35%, they will use the equity method beginning in Year 3, but Year 2 will still be accounted for using the cost method.
Carmen will use the cost method to account for this investment in Year 1, meaning that the ending balance in the investment account will just be the cost of the stock purchases ($80K + $150K). Because the second purchase brought Carmen's ownership percentage up from 15% to 35%, they will use the equity method beginning in Year 3, but Year 2 will still be accounted for using the cost method.
← Didn't Know|Knew It →
Which of the following is not true regarding the cost method for investments?
Which of the following is not true regarding the cost method for investments?
Tap to reveal answer
If the investor has the ability to exercise significant influence over an investee, it should account for its investment using the equity method, regardless of the percentage of ownership.
If the investor has the ability to exercise significant influence over an investee, it should account for its investment using the equity method, regardless of the percentage of ownership.
← Didn't Know|Knew It →
The Bowman Company purchases 10,000 shares of Dalton Company's 300,000 outstanding shares at January 1, Year 2, for $18.34 per share plus a commission of $640. During Year 2, Dalton pays dividends of $2 per share. How much will Bowman report as its investment in Dalton and as dividend income in Year 2?
The Bowman Company purchases 10,000 shares of Dalton Company's 300,000 outstanding shares at January 1, Year 2, for $18.34 per share plus a commission of $640. During Year 2, Dalton pays dividends of $2 per share. How much will Bowman report as its investment in Dalton and as dividend income in Year 2?
Tap to reveal answer
Bowman's investment will be accounted for at cost ($18.34 per share x 10K shares + commission of $640). Under the cost method, they will recognize dividend income of $2 per share x 10K shares.
Bowman's investment will be accounted for at cost ($18.34 per share x 10K shares + commission of $640). Under the cost method, they will recognize dividend income of $2 per share x 10K shares.
← Didn't Know|Knew It →
The valuation of goodwill is a calculation in a business calculation:
The valuation of goodwill is a calculation in a business calculation:
Tap to reveal answer
The amount of goodwill recorded on the balance sheet by an acquiring firm for a business combination represents the excess of the price paid over the fair value of the identifiable net assets acquired.
The amount of goodwill recorded on the balance sheet by an acquiring firm for a business combination represents the excess of the price paid over the fair value of the identifiable net assets acquired.
← Didn't Know|Knew It →
A company has a 24% investment in another firm that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?
A company has a 24% investment in another firm that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?
Tap to reveal answer
A company owning between 20-50% in another firm in which the investment is accounted for using the equity method is considered as having significant influence over the company and is required to disclose the company's accounting policy for the investment.
A company owning between 20-50% in another firm in which the investment is accounted for using the equity method is considered as having significant influence over the company and is required to disclose the company's accounting policy for the investment.
← Didn't Know|Knew It →
Of the following values, which should be disclosed for the purposes of reporting financial instruments such as debt or equity securities?
Of the following values, which should be disclosed for the purposes of reporting financial instruments such as debt or equity securities?
Tap to reveal answer
Both of these values must be reported for a company that holds financial instruments otherwise users of the statements would not be able to see gain or losses that the company incurs.
Both of these values must be reported for a company that holds financial instruments otherwise users of the statements would not be able to see gain or losses that the company incurs.
← Didn't Know|Knew It →
Carmen, Inc purchased 15% of Loman's 60,000 outstanding shares of common stock on January 1, Year 2, for $80,000. On December 31, Year 2, Carmen purchased an additional 12,000 shares of common stock for $150,000. Loman reported $75,000 in earnings for Year 2. There was no goodwill as a result of either transaction, and Loman didn't issue any additional shares of stock in Year 2. There was no unrealized holding gain or loss reported in other comprehensive income for this investment. What amount should Carmen report in its investment account at the end of Year 2?
Carmen, Inc purchased 15% of Loman's 60,000 outstanding shares of common stock on January 1, Year 2, for $80,000. On December 31, Year 2, Carmen purchased an additional 12,000 shares of common stock for $150,000. Loman reported $75,000 in earnings for Year 2. There was no goodwill as a result of either transaction, and Loman didn't issue any additional shares of stock in Year 2. There was no unrealized holding gain or loss reported in other comprehensive income for this investment. What amount should Carmen report in its investment account at the end of Year 2?
Tap to reveal answer
Carmen will use the cost method to account for this investment in Year 1, meaning that the ending balance in the investment account will just be the cost of the stock purchases ($80K + $150K). Because the second purchase brought Carmen's ownership percentage up from 15% to 35%, they will use the equity method beginning in Year 3, but Year 2 will still be accounted for using the cost method.
Carmen will use the cost method to account for this investment in Year 1, meaning that the ending balance in the investment account will just be the cost of the stock purchases ($80K + $150K). Because the second purchase brought Carmen's ownership percentage up from 15% to 35%, they will use the equity method beginning in Year 3, but Year 2 will still be accounted for using the cost method.
← Didn't Know|Knew It →
Which of the following is not true regarding the cost method for investments?
Which of the following is not true regarding the cost method for investments?
Tap to reveal answer
If the investor has the ability to exercise significant influence over an investee, it should account for its investment using the equity method, regardless of the percentage of ownership.
If the investor has the ability to exercise significant influence over an investee, it should account for its investment using the equity method, regardless of the percentage of ownership.
← Didn't Know|Knew It →