testbank_of_chapter_3..docVIP

Chapter 3 Consolidated Statements: Subsequent to Acquisition 1. Pedro purchased 100%of the common stock of the Sanburn on January 1, 20x1, for $500,000. On that date, the stockholder’s equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold furing 20x1, was understated by $20,000. Any remaining excess of cost over book value is arrtibutable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows: 20x1 20x2 net income ……………………………………………………. $80,000 $90,000 dividends paid ………………………………………………….. 10,000 10,000 Using the simple equity method, which of the following amounts are correct? Investment Income 20x1 Investment Account Balance December 31,20x1 A. $80,000 $570,000 B. $70,000 $570,000 C. $70,000 $550,000 D. $80,000 $550,000 ANS: A DIF: M OBJ:1 2. Pedro purchased 100% of the common stock of the Sanburn Company on January 1,20x1, for 20x1, for $500,000. On the date, the stockholder’s equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20x1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows: 20x1 20x2 net income ……………………………………………………. $80,000 $90,000 dividends paid ………………………………………………….. 10,000 10,000 Using the sophisticated (full) equity method, which of the following amounts are correct? Investment Income 20x1 Investment Account Balance December 31,20x1 A. $55,000 $555,000 B. $755,000