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Scott
Scott, MIT Graduate
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Experience:  MIT Graduate (Math, Programming, Science, and Music)
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1. Gaw Company owns 15% of the common stock of Teal ...

Customer Question

1. Gaw Company owns 15% of the common stock of Teal Corporation and used the fair-value method to account for this investment. Teal reported net income of $110,000 for 2002 and paid dividends of $60,000 on October 1, 2002. How much income should Gaw recognize on this investment in 2002?
     A)     $16,500
     B)     $ 9,000
     C)     $25,500
     D)     $ 7,500
     E)     $50,000
     
2. A company should always use the equity method to account for an investment if
     A)     it has the ability to exercise significant influence over the operating policies of the investee.
     B)     it owns 30% of another company's stock.
     C)     it has a controlling interest (more than 50%) of another company's stock.
     D)     the investment was made primarily to earn a return on excess cash.
     E)     it does not have the ability to exercise significant influence over the operating policies of the investee.

3. According to SFAS No. 141, Pooling of Interest Method for business combinations
     A)     Is preferred to the purchase method.
     B)     Is allowed for all new acquisitions.
     C)     Is no longer allowed for business combinations after June 30, 2001.
     D)     Is no longer allowed for business combinations after December 31, 2001.
     E)     Is only allowed for large corporate mergers like Exon and Mobil.

4. Under the cost method, the parent recognizes income when
     A)     dividends are received from the investee.
     B)     dividends are declared by the investee.
     C)     the related expense has been incurred.
     D)     the related contract is signed by the subsidiary.
     E)     it is earned by the subsidiary.

5. Which of the following circumstances would require a write-down of goodwill?
     A)     A decline in the fair market value of the related subsidiary.
     B)     A permanent impairment of value associated with the goodwill.
     C)     A decline in the fair market value of the related reporting unit.
     D)     A decline in the fair market value of the parent company.
     E)     An extraordinary loss event experienced by the related reporting unit
Submitted: 8 years ago.
Category: Homework