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Study Resources (Accounting)

102.When should an investor not use the equity method for an investment of 21% in another corporation? 103.What is the primary objective of the fair value method of accounting for an investment? 104.How would a change be made from the fair value method to the equity method of accounting for investments? 105.When the.
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Essay Questions91.For each of the following numbered situations below, select the best letter answer concerning accounting for investments:(A.) Increase the investment account.(B.) Decrease the investment account.(C.) Increase dividend revenue.(D.) No adjustment necessary.(1.) Income reported by 40% owned investee.(2.) Income reported by 10% owned investee.(3.) Loss reported by 40% owned investee.(4.).
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Match the definitions that follow with the term (a-e) it defines. Demand-based concept Competition-based concept Product cost concept Target costing Production bottleneck 131.  Constraint 132.  Combines market-based pricing with a cost-reduction emphasis 133.  Only includes the costs of manufacturing in product cost per unit 134.  Sets the price according to competitors 135.  Sets the price according to demand .
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130.  Moon Company uses the variable cost concept of applying the cost-plus approach to product pricing. The costs andexpenses of producing and selling 75,000 units of Product T are as follows: Variable costs: Direct materials $7.00 Direct labor 3.50 Factory overhead 1.50 Selling and administrative expenses 3.00 Total $15.00 Fixed costs: Factory overhead $45,000 Selling and administrative expenses 20,000 Moon desires a profit equal to an18%.
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Short Answer Questions106.Charlie Co. owns 30% of the voting common stock of Turf Services Inc. Charlie uses the equity method to account for its investment. On January 1, 2011, the balance in the investment account was $624,000. During 2011, Turf Services reported net income of $120,000 and paid dividends of.
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11.Methods that ignore present value in capital investment analysis include the internal rate of return method. a.True b.False 12.Average rate of return equals average investment divided by estimated average annual income. a.True b.False 13.Average rate of return equals estimated average annual income divided by average investment. a.True b.False 14.The method of analyzing capital investment proposals in which the estimated.
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145.  Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. The project has an estimatedlife of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $  90,000 $210,000 2 80,000 200,000 3 40,000 160,000 4    30,000 150,000 $240,000 $720,000 The company's minimum desired rate of.
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Multiple Choice Questions 1.Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2011 and paid dividends of $60,000 on October 1, 2011. How much income should Gaw recognize on this investment in.
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131.A company is contemplating investing in a new piece of manufacturing machinery.  The amount to be invested is$210,000.  The present value of the future cash flows is $225,000.  The company’s desired rate of return used inthe present value calculations was 12%.  Which of the following statements is true? a.The project should.
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31.Which statement is true concerning unrealized profits in intra-entity inventory transfers when an investor uses the equity method? A. The investor and investee make reciprocal entries to defer and realize inventory profits. B. The same adjustments are made for upstream and downstream transfers. C. Different adjustments are made for upstream and downstream.
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Match each of the methods that follow with the correct category (a–b). a.  Methods that does notuse present value b.  Methods that uses present value 164.  Cash payback method 165.  Internal rate of return method 166.  Average rate of return method 167.  Net present value method Match each definition that follows with the term (a–e) it defines. a. .
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164.  What is the present value of $8,000 to be received at the end of 6-years if the required rate of return is 15%? Below is a table for the present value of $1 at compound interest. Year 15% Year 15% 1 0.870 6 0.432 2 0.756 7 0.376 3 0.658 8 0.327 4 0.572 9 0.284 5 0.497 10 0.247 Below is a table for the present value of an annuity of $1 at compound.
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51.On January 4, 2010, Harley, Inc. acquired 40% of the outstanding common stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise significant influence over Bike. Bike's assets on that date were recorded at $10,500,000 with liabilities of $4,500,000. There were no other differences between book.
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164.  A $400,000 capital investment proposal has an estimated life of 4 years and no residual value. The estimated netcash flows are as follows: Year Net Cash Flow 1 $200,000 2 150,000 3 90,000 4 80,000 The minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compoundinterest of 12% for 1, 2,.
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110.On January 3, 2011, Jenkins Corp. acquired 40% of the outstanding common stock of Bolivar Co. for $1,200,000. This acquisition gave Jenkins the ability to exercise significant influence over the investee. The book value of the acquired shares was $950,000. Any excess cost over the underlying book value was assigned.
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21.All of the following statements regarding the investment account using the equity method are true except: A. The investment is recorded at cost. B. Dividends received are reported as revenue. C. Net income of investee increases the investment account. D. Dividends received reduce the investment account. E. Amortization of fair value over cost reduces.
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31.A company is considering purchasing a machine for $21,000.  The machine will generate income from operations of$2,000; annual net cash flows from the machine will be $3,500.  The payback period for the new machine is 6years. a.True b.False 32.A company is considering the purchase of a new piece of equipment for $90,000.  Predicted.
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41.The computations involved in the net present value method of analyzing capital investment proposals are moreinvolved than those for the average rate of return method. a.True b.False 42.In net present value analysis for a proposed capital investment, the expected future net cash flows are averagedand then reduced to their present values. a.True b.False 43.In net present.
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164.  A $550,000 capital investment proposal has an estimated life of 4 years and no residual value. The estimated netcash flows are as follows: Year Net Cash Flow 1 $300,000 2 280,000 3 208,000 4 180,000 The minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compoundinterest of 12% for 1, 2,.
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61.On January 4, 2011, Mason Co. purchased 40,000 shares (40%) of the common stock of Hefly Corp., paying $560,000. At that time, the book value and fair value of Hefly's net assets was $1,400,000. The investment gave Mason the ability to exercise significant influence over the operations of Hefly. During.
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11.On January 3, 2011, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account for this investment. At the time of the investment, Gainsville's total stockholders' equity was $8,000,000. Austin gathered the following information about Gainsville's assets.
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41.Clancy Incorporated, sold $210,000 of its inventory to Reid Company during 2011 for $350,000. Reid sold $224,000 of this merchandise in 2011 with the remainder to be disposed of during 2012. Assume Clancy owns 30% of Reid and applies the equity method. What journal entry will be recorded at the end.
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81.The expected average rate of return for a proposed investment of $650,000 in a fixed asset, with a useful life of 4years, straight-line depreciation, no residual value, and an expected total net income of $240,000 for the 4 years, isa. 13.9% b. 36.9% c. 18.5% d. 9.25% 82.Which of the following is notan advantage.
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61.The process by which management plans, evaluates, and controls long-term investment decisions involving fixedassets is called a.absorption cost analysis b.variable cost analysis c.capital investment analysis d.cost-volume-profit analysis 62.Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examplesof a.sales mix analysis b.variable cost analysis c.capital investment analysis d.variable cost analysis 63.The methods of evaluating.
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Match each definition that follows with the term (a–f) it defines. a.  Capital rationing b.  Annuity c.  Capital investment analysis d.  Internal rate of return method e.  Payback period f.   Accounting rate of return 164.  A measure of the average income as a percent of the average investment 165.  The process by which management allocates funds among various.
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121.The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. Thecompany's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing.
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145.  Jimmy Co. is considering a 12-year project that is estimated to cost $1,050,000 and has no residual value. JimmyCo. seeks to earn an average rate of return of 18% on all capital projects. Determine the necessary average annualincome (using straight-line depreciation) that must be achieved on this project for.
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Match each of the definitions that follow with the term (a-e) it defines. Engineering change order Total cost concept Variable cost concept Normal selling price Setup 131.  A document that initiates a product or process change 132.  Includes manufacturing costs plus selling and administrative expenses 133.  Changing tooling when preparing for a new product 134.  Target selling price to.
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112.Wathan Inc. sold $180,000 in inventory to Miller Co. during 2010, for $270,000. Miller resold $108,000 of this merchandise in 2010 with the remainder to be disposed of during 2011.Required:Assuming Wathan owns 25% of Miller and applies the equity method, prepare the journal entry Wathan should have recorded at the.
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145.  Proposals A and B each cost $600,000 and have 5-year lives.   Proposal A is expected to provide equal annual netcash flows of $159,000, while the net cash flows for Proposal B are as follows: Year 1 $150,000 Year 2 140,000 Year 3 110,000 Year 4 150,000 Year 5    50,000 $600,000 Determine the cash payback period for each proposal. Round answers.
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111.By converting dollars to be received in the future into current dollars, the present value methods take intoconsideration that money a.has an international rate of exchange b.is the language of business c.is the measure of assets, liabilities, and stockholders' equity on financial statements d.has a time value Below is a table for the present value.
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Match each of the definitions that follow with the term (a-e) it defines. a.  Opportunity cost b.  Sunk cost c.  Theory of constraints d.  Differential analysis e.  Product cost distortion 130.  Possible result of using an inappropriate overhead allocation method 131.  Revenue forgone from an alternative use of an asset 132.  Strategy that focuses on reducing bottlenecks 133.  Not.
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145.  Proposals M and N each cost $550,000, have 6-year lives, and have expected total cash flows of $750,000.Proposal M is expected to provide equal annual net cash flows of $125,000, while the net cash flows for ProposalN are as follows: Determine the cash payback period for each proposal. Year 1 $250,000 Year 2 200,000 Year.
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92.Jarmon Company owns twenty-three percent of the voting common stock of Kaleski Corp. Jarmon does not have the ability to exercise significant influence over the operations of Kaleski. What method should Jarmon use to account for its investment in Kaleski? 93.Idler Co. has an investment in Cowl Corp. for which it.
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91.The production department is proposing the purchase of an automatic insertion machine. It has identified 3machines and has asked the accountant to analyze them to determine the best cash payback. Machine AMachine BMachine C Annual cash flow$40,000$50,000$75,000 Average investment$300,000$250,000$500,000 a.Machine A b.Machine C c.Machine B d.All are equal. 92.The production department is proposing the purchase of an automatic.
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71.The expected average rate of return for a proposed investment of $800,000 in a fixed asset with a useful life of 4years, straight-line depreciation, no residual value, and an expected total net income of $360,000 for the 4 years, is a. 45% b. 22.5% c. 11.3% d. 5.5% 72.The amount of the average investment for.
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21.The expected period of time that will elapse between the date of a capital investment and the complete recovery incash of the amount invested is called the discount period. a.True b.False 22.The expected period of time that will elapse between the date of a capital investment and the complete recovery incash of the.
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1.The process by which management plans, evaluates, and controls long-term investment decisions involving fixedassets is called capital investment analysis. a.True b.False 2.Care must be taken involving capital investment decisions, since normally a long-term commitment of funds isinvolved and operations could be affected for many years. a.True b.False 3.Only managers are encouraged to submit capital investment proposals.
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145.  What is capital investment analysis?  Why are capital investment analysis decisions often difficult and risky? 146.  Determine the average rate of return for a project that is estimated to yield total income of $600,000 over 4 years,cost $840,000, and has an $80,000 residual value. Round percentage answers to one decimal.
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101.The rate of earnings is 6% and the cash to be received in 4 years is $20,000. The present value amount, using thefollowing partial table of present value of $1 at compound interest is Year6%10%12% 10.9430.9090.893 20.8900.8260.797 30.8400.7510.712 40.7920.6830.636 a. $13,660 b. $12,720 c. $15,840 d. $16,800 102.The present value index is computed using which of the following formulas? a.Amount to.
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51.In calculating the net present value of an investment in equipment, the required investment and its residual valueshould be subtracted from the present value of all future cash inflows. a.True b.False 52.In calculating the present value of an investment in equipment, the present value of the residual value should beadded to the cash.
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