1. Under the equity method of accounting for investments, an investor recognizes its share of theear

1. Under the equity method of accounting for investments, an investor recognizes its share of theearnings in the period in which thea. Investor sells the investmentb. Investee declares a dividendc. Investee pays a dividendd. Earnings are reported by the investee in its financial statements2. Pence Corporation, which accounts for its investments in the common stock of Walsh Companyby the equity method, should ordinarily record a dividend received from Walsh asa. An addition to the carrying value of the investmentb. Dividend revenuec. A reduction of the carrying value of the investmentd. Revenue from affiliate3. On January 15, 2002, a corporation was granted a patent on a product. On January 2, 2010,to protect its patent, the corporation purchased a patent on a competing product the originallywas issued on January 10, 2008. Because of its unique plant, the corporation does not feel thecompeting patent can be used in producing a product. The cost of the competing patent should bea. Amortized over a maximum period of 17 yearsb. Amortized over a maximum period of 13 yearsc. Amortized over a maximum period of 9 yearsd. Expensed in 20104. Pacer Company purchased 300 of the 1, 000 outstanding shares of Queen Company’s commonstock for $80,000 on January 2, 2008. During 2009, Queen Company declared dividends of$8,000 and reported earnings for the year of $20,000.If Pacer Company uses the equity method of accounting for its investment in Queen Company,its Investment in Queen Company account at December 31, 2009 should bea. $100, 000b. $88,000c. $83,600d. $80,0005. Refer to the facts in problem (4). If Pacer Company uses the lower of cost or market method ofaccounting for its investment in Queen Company, and the value of its investment hasn’t changed,its Investment in Queen Company account on December 31, 2009, should bea. $100, 000b. $88,000c. $80,000d. $73,6006. A large, publicly held company developed and registered a trademark during 2010. The cost ofdeveloping and registering the trademark should be accounted for bya. Charging it to an asset account that should not be amortizedb. Expensing it as incurredc. Amortizing it over 25 years if in accordance with management’s evaluationd. Amortizing it over its useful life or 17 years, whichever is shorter7. Goodwill should be written offa. As soon as possible against retrained earningsb. When there is evidence that its carrying value has been impairedc. By systematic charges against retained earnings over the period benefited, but not morethan 40 yearsd. By systematic charges to expense over the period benefited, but not more than 40 years8. A net unrealized loss on a company’s long-term portfolio of available for sale securities shouldbe reflected in the current financial statements asa. An extraordinary item shown as a direct reduction from retained earningsb. A current loss resulting from holding marketable equity securitiesc. A footnote or parenthetical disclosure onlyd. A component of other comprehensive income9. Changes in the fair value of a long-term available for sale equity securities portfolio should bereported as a component ofa. Other comprehensive incomeb. Noncurrent assetsc. Noncurrent liabilitiesd. Net income10. Cash dividends declared out of current earnings are distributed to an investor. How will theinvestor’s investment account be affected by those dividends under each of the followingaccounting methods?a. Decrease No effectb. Decrease Decreasec. No effect Decreased. No effect No effect11. An activity that would be expensed currently as research and development costs is thea. Testing in search for or evaluation of product or process alternativesb. Adaptation of an existing capability to a particular requirement or customer’s need as a partof continuing commercial activityc. Legal work in connection with patent applications or litigation, and the sale or licensing ofpatentsd. Engineering follow-through in an early phase of commercial productionFair Value Method Equity Method12. Should the following fees associated with the registration of an internally developed patent becapitalized? Legal fees feesa. Yes Yesb. Yes Noc. No Yesd. No No13. Which of the following assets acquired in 2010 are amortizable? Goodwill Trademarksa. No Nob. No Yesc. Yes Nod. Yes No14. A purchased patent has a remaining life of 15 years. It should bea. Expensed in the year of acquisitionb. Amortized over 15 years regardless of its useful lifec. Amortized over its useful life if less than 15 yearsd. Amortized over 40 years15. Which of the following amounts incurred in connection with a trademark should be capitalized? Cost of a Registration Successful defense feesa. Yes Nob. Yes Yesc. No Yesd. No No16. Zink Company owns 32% of Ace Company’s outstanding voting stock. Zink Company normallyshould account for its investment in Ace Company using thea. Fair value method.b. Cost method.c. Consolidation procedure.d. Equity method.1. An investor purchased a bond as a long-term investment on January 1. Annual interest wasreceived on December 31. The investor’s interest income for the year would be lowest if the bondwas purchased ata. A discountb. A premiumc. Pard. Face value19. The theoretical justification for expensing research and development (R&D) cost as it is incurredis based on which of the following arguments?a. R&D costs provide no future benefits, thus it does not meet the definition of an assetb. R&D costs are incurred to generate current period revenue, thus the matching conceptrequires that it be expensed as incurred.c. Whether R&D costs that have been incurred will provide future benefit is uncertain, thus itdoes not meet the definition of an asset.d. Since R&D costs have been incurred during the current period, they meet the definition of anexpense.20. When a patent is successfully defended in court, the cost of the lawsuita. Should be expensed as incurred because it is a period cost.b. Should be added to the cost of the patent and depreciated over the remaining useful life of thepatent.c. Should be added to the cost of the patent which is then expensed as a period cost.d. Has already been expensed so there is no further action to take.21. Goodwill is an intangible asseta. That has a definite life and its cost should be amortized over its useful life.b. That is recorded when the company has projected earnings in excess of earnings expected foran investment in a similar company in the same industry.c. That is reviewed for impairment when circumstances indicate that impairment may haveoccurred.d. That is reviewed annually to determine whether impairment has occurred.22. A trading security is measured at fair value on the balance sheet date and reported asa. A current asset, and changes in fair value are reported in earnings as unrealized gains andlosses.b. A current asset, and changes in fair value are reported in earnings as realized gains andlosses.c. Either a current or noncurrent asset depending on whether they meet the definition of acurrent asset.d. A current asset, and changes in fair value are reported in accumulated other comprehensiveincome as unrealized gains and losses.23. Current accounting for an available-for-sale (AFS) security is consistent witha. The financial capital maintenance concept of income because AFS security unrealized gainsand losses are reported in earnings.b. The financial capital maintenance concept of income because AFS security unrealized gainsand losses are reports in other comprehensive income.c. The physical capital maintenance concept of income because AFS security unrealized gainsand losses are reported in earnings.d. The physical capital maintenance concept of income because AFS security unrealized gainsand losses are reported in other comprehensive income.24. The physical capital maintenance concept of income would require that an investment in thecommon stock of another entity bea. Reported in the balance sheet at historical cost and that only realized gains and losses bereported in earnings.b. Reported in the balance sheet at historical cost and that unrealized gains and losses bereported in earnings.c. Reported in the balance sheet at fair value and that unrealized gains and losses be reported inearnings.d. Reported in the balance sheet at fair value and that unrealized gains and losses be reported inother comprehensive income.25. The economic concept of income would require that an investment in the common stock ofanother entity bea. Reported in the balance sheet at historical cost and that only realized gains and losses beb. Reported in the balance sheet at historical cost and that unrealized gains and losses bec. Reported in the balance sheet at fair value and that unrealized gains and losses be reported ind. Reported in the balance sheet at fair value and that unrealized gains and losses be reported inreported in earnings.reported in earnings.earnings.other comprehensive income.26. Under the fair value option, an investment in the common stock of another entity will bea. Reported as a current assetb. Reported as a noncurrent assetc. Reported as either a current or noncurrent asset depending on managerial intent.d. Reported as a current asset only if it was not previously reported as an equity methodinvestment.27. When a company reports goodwill in its balance sheet, we know thata. It was internally generated because the company has earnings in excess of those of otherb. The company purchased it.c. The company will be reporting amortization expense for the goodwill.d. The company will not be reporting an impairment loss for the goodwill.companies in the industry.Essay1. How are income and balance sheet values determined under the equity method?2. Discuss accounting for equity securities under the cost method.3. Discuss accounting for equity securities under the SFAS No. 115 now contained at FASB ASC320.4. Summarize the accounting requirements for investments in equity securities. That is, whatmethods are available and when is each method appropriate?5. Discuss the use of the fair value option originally described in SFAS No. 159 now contained atFASB ASC 825-10.6. Discuss accounting for investments in debt securities.7. What is an intangible asset? How is the cost of an intangible asset amortized?.8. What is goodwill? How is goodwill written off under the provisions of SFAS No. 142 now FASBASC 350?9. Define research and development. How are research and development costs recorded10. How does IAS No 39 define fair value?