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1.On January​ 1, 2016, TXU Europe Corporation purchased​ 40% of the outstanding stock of Alberta Power...

1.On January​ 1, 2016, TXU Europe Corporation purchased​ 40% of the outstanding stock of Alberta Power Pool Corporation for​ $800,000. Net income reported by Alberta Power Pool Corporation for 2016 and 2017​ was, respectively,​ $100,000 and​ $125,000. Dividends paid by Alberta Power Pool Corporation during 2016 and 2017​ were, respectively,​ $60,000 and​ $75,000. The long−term investment will appear on TXU Europe​ Corporation's December​ 31, 2016, balance sheet​ at:

A.​$800,000

B.​$776,000

C.​$816,000

D.​$840,000

2. The adjusting entry for investments at fair value through other comprehensive income contains a credit to Investments for​ $651. The income statement will​ reflect:

A.other comprehensive​ income/loss of​ ($651)

B.an extraordinary gain of​ $651

C.revenue of​ $651

D.​nothing, because​ gain/loss is not reported on the income statement

3.The​ Gain/Loss on Investment account may appear on which financial​ statement?

A.the income statement under the​ "other income/expense" section

B.the balance sheet under the​ "assets" section as a contra asset

C.the balance sheet under the​ "liabilities" section

D.the balance sheet as part of the​ shareholders' equity

Solutions

Expert Solution

Question 1

1.On January​ 1, 2016, TXU Europe Corporation purchased​ 40% of the outstanding stock of Alberta Power Pool Corporation for​ $800,000. Net income reported by Alberta Power Pool Corporation for 2016 and 2017​ was, respectively,​ $100,000 and​ $125,000. Dividends paid by Alberta Power Pool Corporation during 2016 and 2017​ were, respectively,​ $60,000 and​ $75,000. The long−term investment will appear on TXU Europe​ Corporation's December​ 31, 2016, balance sheet​ at:

a) $ 8,00,000

Explanation : Net income and dividends does not affect the cost price of investment which is recorded in balance sheet (asset side) at cost.

Question 2

The adjusting entry for investments at fair value through other comprehensive income contains a credit to Investments for​ $651. The income statement will​ reflect:

A.other comprehensive​ income/loss of​ ($651)

Explanation : Incom from investment are not shown in income statement.

Question 3

The​ Gain/Loss on Investment account may appear on which financial​ statement?

A.the income statement under the​ "other income/expense" section

Explanation : Gain/ loss on investment is shown under " other income expenses section" in income statement. Rather it is shown in balance sheet.

ekkarill92 answered 2 years ago
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