Minority ownership occurs when a corporate investor owns less than which one of the following percentages of the stock of another company?

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Question 1 of 20 5.0 Points
Minority ownership occurs when a corporate investor owns less than which one of the following percentages of the stock of another company?

A. 20%
B. 30%
C. 40%
D. 50%
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Mark for Review What’s This?Question 2 of 20 5.0 Points
A minority active ownership is represented by:

A. less than 20% ownership.
B. more than 20% and less than 50% ownership.
C. more than 50% ownership.
D. more than 60% and less than 70% ownership.
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Mark for Review What’s This?Question 3 of 20 5.0 Points
Equity securities designated by the investor to be held for a short period of time are classified as:

A. available-for-sale securities.
B. trading securities.
C. mark-to-market securities.
D. adjusted historical cost securities.
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Mark for Review What’s This?Question 4 of 20 5.0 Points
Minority passive equity securities designated by the investor to be held for the long-term are:

A. trading securities.
B. available-for-sale securities.
C. mark-to-market securities.
D. adjusted historical cost securities.
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Mark for Review What’s This?Question 5 of 20 5.0 Points
When the ownership percentage of stock exceeds 20 percent, GAAP presumes that the investor:

A. has no influence to exert over the investee company.
B. is only investing for a short term trading position.
C. is able to exert influence over the investee company.
D. is trying to take over the investee company.
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Mark for Review What’s This?Question 6 of 20 5.0 Points
When an investor owns less than 20 percent of the investee company, the investor may still be able to exert influence over the investee company if the other stock is:

A. closely held by a few investors.
B. widely distributed across a few investors.
C. widely distributed across a large number of individual investors.
D. controlled a small group of investors.
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Mark for Review What’s This?Question 7 of 20 5.0 Points
A minority active investment is accounted for by the:

A. cost method.
B. equity method.
C. lower of cost or market method.
D. speculative investment method.
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Mark for Review What’s This?Question 8 of 20 5.0 Points
If the parent company owns more than 50% of the subsidiary’s voting stock, consolidated financial statements are:

A. optional.

B. required.

C. not possible.

D. required only by the SEC.
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Mark for Review What’s This?Question 9 of 20 5.0 Points
Consolidation adjustments that are made to prepare consolidated financial statements of the parent and subsidiary are required to:

A. obey the state laws.

B. avoid double counting.

C. follow tax laws.

D. eliminate transactions with third parties.
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Mark for Review What’s This?Question 10 of 20 5.0 Points
When accounting for self-contained foreign subsidiaries, the parent company uses which one of the following methods for the translation of its financial statements into dollars?

A. Present value rate

B. Historical rate

C. Future value rate

D. Current rate
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Mark for Review What’s This?Question 11 of 20 5.0 Points
QUESTIONS 11 THROUGH 13 ARE BASED ON EXHIBIT 4-3.
Exhibit 4-3
Refer to Exhibit 4-3. The entry to record the purchase of IDA, Inc. common stock would be which one of the following?
Bowers Investments bought 1,000 shares of IDA, Inc. common stock on January 1, Year 1, for $5,000 and 1,000 shares of JOE, Inc. common stock on July 1, Year 1, for $6,000. IDA declared $500 in dividends, and JOE declared $600 in dividends on December 31, Year 1. At the end of Year 1, the market value of the IDA stock was $4,500 and the market value of the JOE stock was $7,000. The stock was purchased for short-term speculation. Bowers owns 10% of each company.

A.

B.

C.

D.
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Mark for Review What’s This?Question 12 of 20 5.0 Points
Refer to Exhibit 4-3. Bowers should record the declaration of the JOE dividend as shown in which one of the following entries?

A.

B.

C.

D.
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Mark for Review What’s This?Question 13 of 20 5.0 Points
Refer to Exhibit 4-3. Which one of the following entries is appropriate for the mark to market adjustment made by Bowers at the end of Year 1?

A.

B.

C.

D.
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Mark for Review What’s This?Question 14 of 20 5.0 Points
Harter Investments bought 2,000 shares of Lee Company common stock on January 1, Year 4, for $10,000 and 2,000 shares of Olivia Company common stock on July 1, Year 4, for $12,000. At the end of Year 4, the market value of the Lee stock was $14,000 and the market value of the Olivia stock was $15,000. The stocks were held for their long-term investment potential. Harter owns 8% of Lee and 12% of Olivia. The year end mark to market adjustment made by Harter should include which one of the following?

A. A debit to an income account for an unrealized holding loss

B. A debit to an equity account for an unrealized holding loss

C. A credit to an income account for an unrealized holding gain

D. A credit to an equity account for an unrealized holding gain
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Mark for Review What’s This?Question 15 of 20 5.0 Points
QUESTIONS 15 AND 16 ARE BASED ON EXHIBIT 4-4.
Exhibit 4-4
Refer to Exhibit 4-4. The entry to recognize (record) Daniel’s share of Matthew’s earnings for the year would be which one of the following?
On January 1, Year 7, Daniel Company purchased 35% of the outstanding common stock of the Matthew Company for $17,500 when the net assets of Matthew were $50,000. During Year 7, Matthew Company earned $20,000 and declared a dividend of $10,000 for the year. (Reminder: The net assets of a company equal assets minus liabilities; therefore, net assets also equal owners’ equity. Assets = Liabilities + Owners’ equity. Assets – Liabilities = Owners’ equity.)

A.

B.

C.

D.
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Mark for Review What’s This?Question 16 of 20 5.0 Points
Refer to Exhibit 4-4. The entry made by Daniel to record Matthew’s dividend declaration on Daniel’s books would be which one of the following?

A.

B.

C.

D.
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Mark for Review What’s This?Question 17 of 20 5.0 Points
An investor would be willing to pay more than book value for an interest in a company as a result of:

A. fair market value being lower than cost.

B. goodwill.

C. historical cost being higher than fair market value.

D. negative goodwill.
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Mark for Review What’s This?Question 18 of 20 5.0 Points
Consolidation adjustments that are made to prepare consolidated financial statements of the parent and subsidiary are required in order to:

A. avoid double counting.

B. eliminate transactions with third parties.

C. follow tax laws.

D. obey the state laws.
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Mark for Review What’s This?Question 19 of 20 5.0 Points
For consolidation purposes, goodwill is:

A. reported under the pooling of interests method only.

B. reported under the purchase method only.

C. reported under the pooling of interests method and the purchase method.

D. never reported in a consolidation.
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Mark for Review What’s This?Question 20 of 20 5.0 Points
Foreign currency monetary assets and liabilities are translated using the __________ rate of exchange as of the balance sheet date.

A. current

B. historic

C. present value

D. temporal
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