Debbie, Inc. purchased 40 percent of North Sails' 60,000 outstanding shares at a cost of $12 per share. Later, North Sails reported a net income of $120,000. How much revenue should Debbie, Inc. recognize from this investment?
Explanation
Under the equity method, the investor recognizes revenue equal to its proportionate share of the investee's net income for the period. This revenue recognition increases the carrying value of the investment.
Other questions
According to the text, which of the following is NOT a primary reason for a corporation to invest in debt or stock securities?
Kuhl Corporation acquires 50 Doan Inc. 8 percent, 10-year, $1,000 bonds on January 1, 2017, for $50,000. How should this acquisition be recorded?
Sanchez Corporation acquires 1,000 shares of Beal Corporation common stock for $40 per share on July 1, 2017. On December 31, Beal pays a cash dividend of $2 per share. What is the correct entry for Sanchez to record the dividend?
Which accounting method should be used for a stock investment when the investor has significant influence over the investee, typically owning between 20 percent and 50 percent of the common stock?
Milar Corporation acquires 30 percent of the common stock of Beck Company. In 2017, Beck reports net income of $100,000. What entry should Milar make to record its share of Beck's income?
A company that owns more than 50 percent of the common stock of another entity is known as a:
For valuation purposes, debt and stock investments are classified into which three categories?
How are changes in the fair value of trading securities reported in the financial statements?
Pace Corporation's trading securities portfolio has a total cost of $140,000 and a total fair value of $147,000 on December 31, 2017. What is the adjusting entry to record the unrealized gain?
How are changes in the fair value of available-for-sale securities reported in the financial statements?
Ingrao Corporation's available-for-sale securities portfolio has a total cost of $293,537 and a total fair value of $284,000. What is the adjusting entry to record the unrealized loss?
What are the two criteria for an investment to be classified as a short-term investment?
In the balance sheet, where is an unrealized loss on available-for-sale securities typically presented?
Under the equity method, how does the receipt of a cash dividend from the investee company affect the investor's accounts?
Kuhl Corporation sells debt investments that cost $50,000 for net proceeds of $54,000. What is the result of this transaction?
Which category of securities is never classified as a current asset?
What is the primary purpose of reporting an unrealized gain or loss on available-for-sale securities in the stockholders' equity section?
Milar Corporation owns 30 percent of Beck Company. Beck reports a net income of $100,000 and pays dividends of $40,000. What is the net increase in Milar's Stock Investment account for the year?
The accounting for debt investments involves entries for which three events?
In the classified balance sheet presented in Illustration 16-12 for Pace Corporation, what is the total amount of investments reported?
Which of the following describes a key difference in accounting for investments under IFRS compared to GAAP?
Under the cost method, when is revenue from a stock investment recognized?
If a company prepares consolidated financial statements, what does this imply about its stock investments?
The Fair Value Adjustment account is used to:
In the income statement, where are unrealized losses on trading securities generally reported?
Rho Jean Inc. acquired 5 percent of Stillwater Corp.'s 400,000 shares at a cost of $6 per share. Stillwater later declared and paid a $75,000 dividend. What amount of dividend revenue should Rho Jean Inc. record?
The group of securities held by a company, consisting of stock and/or debt of several different corporations, is identified as a(n):
Pryor Company sells stock investments that cost $39,500 for net proceeds of $42,000. This transaction results in a:
Horicon Corp. acquired 25 percent of Sheboygan Corp. for $300,000. During the year, Sheboygan reported net income of $160,000 and paid dividends of $60,000. What is the balance in Horicon's investment account at year-end?
What is the key determinant for using the equity method of accounting for a stock investment?
An unrealized gain on trading securities will:
What is the purpose of a Fair Value Adjustment account for available-for-sale securities?
At the end of its first year, a company's trading securities portfolio has a cost of $120,000 and a fair value of $115,000. The financial statements should show:
A key difference between debt and stock investments is that:
On the classified balance sheet in Illustration 16-12, how is the unrealized gain on available-for-sale securities of $10,000 presented?
Waldo Corporation purchased 30 Hillary Co. 10 percent bonds for $30,000. On December 31, 2017, it accrued interest for the year. What is the journal entry to record the receipt of the interest on January 1, 2018?
If a company sells a portion of its debt investment portfolio, how is the cost of the sold securities determined for the journal entry?
The valuation guidelines for debt and stock investments shown in Illustration 16-6 apply to which type of holdings?
What is the primary reason that Time Warner used the equity method to account for its 20 percent investment in Turner Broadcasting?
When a company owns more than 50 percent of another entity, how are the subsidiary's assets and liabilities typically reported?
Stock investments are never classified as:
If a company has a debit balance in its 'Unrealized Gain or Loss—Equity' account, how is it presented on the balance sheet?
Pace Corporation shows short-term investments at fair value of $147,000 on its balance sheet. This amount represents:
What type of transaction is the sale of a debt investment for cash reported as on the statement of cash flows?
When is an adjusting entry to accrue dividend revenue appropriate for a stock investment?
The unrealized gain or loss on available-for-sale securities is reported as part of:
If a company sells debt investments costing $26,000 for $28,000, what is the journal entry?
What is the primary difference between the cost method and the equity method for stock investments?
If a company has an investment with more than 50 percent ownership in an investee, the investee is referred to as the: