1. On October 1, 20X7, Chicago Corporation purchased 6,000 shares of Buffalo Company's 15,000 outstanding share of common stock for $25 per share. On December 15, 20X7, Buffalo paid $120,000 in dividends to its common stockholders. Buffalo's net income for the year ended December 31, 20X7 was $300,000, earned evenly throughout the year. In its 20X7 income statement, what amount of income from this investment should Chicago report?

$12,000

$30,000

$48,000

$120,000

2. Which of the following observations is NOT consistent with the cost method of accounting?

Investee dividends from earnings since acquisition by investor are treated as a reduction of the investment.

Investments are carried by the investor at historical cost.

No journal entry is made regarding the earnings of the investee.

It is consistent with the treatment normally accorded noncurrent assets.

3. The consolidation process consists of all of the following except:

Combining the financial statements of two or more legally separate companies.

Eliminating intercompany transactions and holdings.

Closing the individual subsidiary's revenue and expense accounts into the parent's retained earnings.

Combining the accounts of separate companies, creating a single set of financial statements.