Question

The following information is used for the following two questions. Ping and Slazenger Company (its 90% owned affiliate) reported the following income information for year X1: Ping Slazenger Revenue 300,000 100,000 Cost of Sales 120,000 40,000 Selling, General, and Adm Expenses 40,000 20,000 Depreciation 20,000 10,000 Investment Income ? Total Net Income ? 30,000 During Year X1, Slazenger made sales of $20,000 to Ping. Slazenger’s Cost of Sales was $10,000. As of 12/31/X1, Ping had still owned 60% of the units acquired from Slazenger. Based on this information, how much Consolidated Income should Ping report? Select one: a. $140,000 b. $144,000 c. $146,000 d. $150,000 e. None of the Above

The next two questions are based on the following information: Assume that Meridian Company acquired 1,000 shares of of Slim Company's common stock for $10 per share on 1/1/X1 and adopted the fair value (FV) accounting method. On 1/1/X1, Slim had 10,000 shares outstanding and its equity book value included $50,000 Capital Stock and $50,000 of Retained Earnings. During year X1, Slim reported a $50,000 net income and paid dividends of $1 per share. on 12/31/X1, Slim's stock traded at $16 per share. How much investment income should Meridian recognize in year X1?

Select one:

a. $1,000

b. $5,000

c. $6,000

d. $7,000

e. None of the Above

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This question is a continuation of the previous question about Meridian and Slim. On 1/1/X2, Meridian purchased 5,000 shares of Slim stock for $17 per share and elected Meridian's CEO and CFO to Slim's Board of Directors. An appraisal of Slim's assets could not identify any asset groups that were mis-valued. During year X2, Slim reported earnings per common share of $6 and paid a dividend of $1 per share. On 12/31/X2, Slim stock traded at $21 per share. Based on this information, Meridian's investments in Slim should be reported at which of the following amounts on 12/31/X2?

Select one:

a. $125,000

b. $131,000

c. $132,000

d. $138,000

e. None of the Above

Answer 1

Question 1 how much Consolidated Income should Ping report?

Select one: a. $140,000 b. $144,000 c. $146,000 d. $150,000 e. None of the Above

Option b is correct

How much investment income should Meridian recognize in year X1?

Select one:

a. $1,000

b. $5,000

c. $6,000

d. $7,000

e. None of the Above

The Correct option would be d. $7000.

The Investment of $10000 would be marked to market on the Balance Sheet date due to the use of Fair Value Method. Number of Shares 1000 Market price on 12/31/X1 $16 Market to Market $ 16000 Net Income = 16000-10000= $6000

Also $1 per share Dividend received Total Dividend Income $1000

Hence Total Investment Income would be $7000

Based on this information, Meridian's investments in Slim should be reported at which of the following amounts on 12/31/X2?

Select one:

a. $125,000

b. $131,000

c. $132,000

d. $138,000

e. None of the Above

The Correct option would be e. None of the Above.

As the Company has purchased 5000 shares i.e 50% of the holding and appointed CEO and CFO. It has significant influence over the other company. Hence the Investment would be reported as under

The Investment would be marked to market first

Investment marked to market = 5000 shares @ $21 =                 105,000

Net Income = 5000 shares @ $6                           =                    30,000

Dividend would be reduced from Investment 5000 shares @ $1 =    - 5,000

Value of Investment                                                             =    130,000