Question

Question 1 (1 point)

Equity-method investments (20%-50% ownership) are generally shown at their fair market value on the Balance Sheet.

A: True

B: False

Question 2 (1 point)

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

A: Dr. Cash and Cr. Investment

B: Dr. Investment and Cr. Cash

C: Dr. Investment and Cr. Dividend Revenue

D: Dr. Cash and Cr. Dividend Revenue

Question 3 (1 point)

On 1/1/20, Hershey Corporation purchases 20,000 of the 60,000 outstanding shares of CC Confectioneer for $40 per share. During 2020, CC Confectioneer reports net income of $600,000 and pays total dividends to common shareholders of $300,000. Hershey's 2020 pre-tax Net Income will be ________ because of this investment.

A: $600,000 higher

B: $200,000 higher

C: $100,000 higher

D: $300,000 higher

Question 4 (1 point)

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

A: True

B: False

Answer 1

1) Equity-method investments (20%-50% ownership) are generally shown at their fair market value on the Balance Sheet.
Answer False
Equity-method investments (20%-50% ownership) are generally valued based on the investee profit and losses.

2) For Equity-Method investments (20-50% ownership), dividends received from the investee company will result in the following journal entry
A: Dr. Cash and Cr. Investment

Under equity method , the dividend share recived reduces the carrying value of investment

3) On 1/1/20, Hershey Corporation purchases 20,000 of the 60,000 outstanding shares of CC Confectioneer for $40 per share. During 2020, CC Confectioneer reports net income of $600,000 and pays total dividends to common shareholders of $300,000. Hershey's 2020 pre-tax Net Income will be ________ because of this investment.
B: $200,000 higher
Share in equity Income in CC Confectioneer (20000/60000)*$600000

4) There is usually more uncertainty about the accuracy of Level 3 investment valuations than Level 1 investment valuations.
A: True
Level 1 assets are stocks bonds , funds or any other asset who have a reliable fair market value due to a mark to market mechanism. Level 3 are hard to value , not traded frequently . The fair value of such assets are difficult to determine and estimates are often used .