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1. Equity-Method investments (20%-50% ownership) are generally marked to their market value on the Balance Sheet.

Question 1 options: True or False

2. If a company purchases 100% of another company's stock, the Inventory balance shown on the consolidated Balance Sheets will reflect both companies' inventory.

Question 2 options: True or False

3. On 1/1/23, Abel Company purchases 100,000 shares of Zeta Company common stock for $20 per share. Zeta has 5,000,000 total shares of common stock outstanding. On 12/31/23, the Zeta shares are trading at $25 per share. Abel will record the following mark-to-market journal entry at the end of 2023:

Question 3 options:

A. Dr. Investment 500,000 and Cr. Unrealized Gain 500,000

B. Dr. Unrealized Gain 500,000 and Cr. Investment 500,000

C. Dr. Investment 500,000 and Cr. Unrealized Loss 500,000

D. Dr. Unrealized Loss 500,000 and Cr. Investment 500,000

4. There is usually more uncertainty about the accuracy of Level 3 investment valuations than Level 1 investment valuations.

Question 4 options: True or False

5. If a company sells an Investment and the cash received from the investment sale is more than the Investment value on the company's books, the company will report a 'Loss on Sale of Investment.'

Question 5 options: True or False

6. On 1/1/23, Vavant Company purchases 40,000 of the 100,000 outstanding shares of Corral Company for $100 per share. During 2023, Corral reports net income of $700,000 and pays total dividends to common shareholders of $300,000. Vavant's 2023 pre-tax Net Income will be ________ because of this investment.

Question 6 options:

A. $120,000 lower

B. $120,000 higher

C. $160,000 higher

D. $280,000 higher

7. For Equity-Method investments (20-50% ownership), cash dividends received from the investee company will result in the following journal entry:

Question 7 options:

A. Dr. Cash and Cr. Investment

B. Dr. Cash and Cr. Dividend Revenue

D. Dr. Investment and Cr. Dividend Revenue

D. Dr. Investment and Cr. Cash

8. Passive investments (<20% ownership) are generally marked to their market value on the Balance Sheet.

Question 8 options: True or False

9. On 1/1/23, Vavant Company purchases 40,000 of the 100,000 outstanding shares of Corral Company for $100 per share. During 2023, Corral reports net income of $700,000 and pays total dividends to common shareholders of $300,000. Vavant's 12/31/23 Balance Sheet will show $______ for the Investment account.

Question 9 options:

A. $4,160,000

B. $3,600,000

C. $4,400,000

D. $4,000,000

10. For Passive investments (<20% ownership), cash dividends received from the investee company will result in the following journal entry:

Question 10 options: A. Dr. Cash and Cr. Investment

B. Dr. Dividend Revenue and Cr. Cash

C. Dr. Investment and Cr. Dividend Revenue

D. Dr. Cash and Cr. Dividend Revenue

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