Question

22) On January 1, 2014, Benson Corporation paid $800,000 to purchase 40% of the outstanding stock of Kroger Company. Kroger Company reported net income of $200,000 for the year ending December 31, 2014 and paid cash dividends of $60,000 during 2014. On January 1, 2015, Benson Corporation sells its entire investment in Kroger Company for $1,100,000. Benson Corporation will report a(n):

A) realized gain on the sale of $300,000.

B) unrealized gain on the sale of $300,000.

C) realized gain on the sale of $244,000.

D) unrealized gain on the sale of $244,000.

23) Daniel Company purchased 30% of the outstanding shares of Clooney Corporation on January 1 at a cost of $600,000. Clooney Corporation reported net income of $95,000 and paid total dividends of $25,000 for the year. At the end of the year, Clooney shares had a current fair value of $590,000. After all necessary adjusting entries are made for the year, the balance in Daniel Company's Equity-Method Investment account will be:

A) $590,000.

B) $621,000.

C) $628,500.

D) $638,500.

24) On January 1, 2014, Conner Corporation purchased 70,000 of the 210,000 shares of outstanding stock of JJ Company for $600,000. Net income reported by JJ Company for 2014 was $600,000. Dividends paid by JJ Company during 2014 were $150,000. The Equity-Method Investment will be reported on Conner Corporation's December 31, 2014 balance sheet in the amount of:

A) $600,000.

B) $650,000.

C) $750,000.

D) $960,000.

25) On January 1, 2014, Rod Corporation purchased 35% of the outstanding stock of Alamo Corporation for $500,000. Net income reported by Alamo for 2014 was $200,000. Dividends paid by Alamo during 2014 were $40,000. The amount of investment revenue that Rod should recognize for 2014 is:

A) $14,000.

B) $56,000.

C) $70,000.

D) $84,000.

Answer 1

22) Realized gain = Dividends + any capital gain, As the sale of stock is done the gain or loss from the sale will be realized.

• = Selling price - Purchase price of stock = 1,100,000-800,000 =300,000

Answer: Realized gain on the sale $300,000

23) 590,000 is the correct answer because at the end of the year fair value of the stocks will be recorded in the books of daniel because marketable securities are recorded at Fair market value

24) $600,000 becaus teh value of investment will be shown in the books of accounts of conner

25) $14,000 because, The investment revenue = dividends paid by alma to rod corporation

• = 35% * 40000
• $14000