ACC 401 QUIZ 3

ACC 401 QUIZ 3

Author: Christine Farr


1. On January 1, 2011, Potter Company purchased 25 % of Smith Company’s common stock; no goodwill resulted from the acquisition. Potter Company appropriately carries the investment using the equity method of accounting and the balance in Potter’s investment account was $190,000 on December 31, 2011.  Smith reported net income of $120,000 for the year ended December 31, 2011 and paid dividends on its common stock totaling $48,000 during 2011. How much did Potter pay for its 25% interest in Smith?
2. In years subsequent to the year of acquisition, an entry to establish reciprocity is made under the
3. Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent company’s
4. On January 1, 2011, Rotor Corporation acquired 30 percent of Stator Company's stock for $150,000. On the acquisition date, Stator reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 10 years. During 2011 Stator reported net income of $25,000 and paid dividends of $10,000. Rotor uses the equity method.   What will be the balance in the Investment account as of Dec 31, 2011?
5. An investor adjusts the investment account for the amortization of any difference between cost and book value under the

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