Cost Method

Question 1

Investment in Investee is not adjusted for in

Answer 1

Investee Earnings

Question 2

Investment in Investee is adjusted to

Answer 2

Fair Value

Question 3

Cash div from Investee are reported as

Answer 3

Income by investor ( Parent)

Question 4

Under the cost method of accounting, the parent does what for the investment in sub

Answer 4

NOT adjust the investment in the sub. The parent’s investment in the sub will be the same on the investment date as at the date of combination

Question 5

Cost Method Stock Income

Answer 5

Receipt of a stock dividend is not income. It increases the number of shares held and decreases the cost basis per share.

Question 6

Cost method DIV Revenue that is reported is

Answer 6

The amount of dividend revenue that should be reported in the investor’s income statement for this year would be the portion of the dividends received this year that were not in excess of the investor’s share of investee’s undistributed earnings since the date of investment.

Question 7

Under the cost method, dividends received by the investor are treated as

Answer 7

dividend revenue

Question 8

dividends in excess of earnings

Answer 8

reduce investment account