1) Picayune company purchased 40,000 of Stewart Company's 100,000 shares for $400,000 on 1/1/X1 when Stewart's equity consisted of $500,000 capital stock and $500,000 of retained earnings. An appraisal of Stewart's assets failed to identify any mis-valued assets. Picayune designated the Investment as a fair value investment. During year X1, Stewart earned a $100,000 net income and paid $50,000 of dividends. On 12/31/X1, Stewart's stock traded at $10.20 per share. How much investment income should Picayune recognize in year X1?

Select one:

a. $8,000

b. $20,000

c. $28,000

d. $40,000

e.

None of the Above

2) On 1/2/X2, Picayune purchased 20,000 additional shares of Stewart stock for $12 per share. What entries should Picayune make on 1/2/X2?

Select one:

a. Picayune should Debit the Investment for $240,000 and Credit Cash for $240,000.

b. Picayune should Debit the Investment for $312,000, Credit Cash for $240,000, and Credit a Gain for $72,000.

c. Picayune should Debit the Investment for $320,000, Credit Cash for $240,000, and Credit a Gain for $80,000.

d. Picayune should Debit the Investment for $320,000, Credit Cash for $240,000, and Credit Picayune's Capital for $80,000.

e. None of the Above

3) During year X2, Stewart Company reported a net income of $150,000 and paid $40,000 of dividends. On 12/31/X2, Stewart Company's stock traded at $14 per share. Based on this information, how much Income should Picayune recognize from its Investment in Stewart?

Select one:

a. $36,000

b. $54,000

c. $90,000

d. $120,000

e. None of the Above

4) This question relies on information in the previous information about Picayune and Stewart. On its 12/31/X2 financial statements, Picayune is required to do which of the following?

Select one:

a. Picayune will be required to consolidate Stewart Company's year X1 financial statements shown on a comparative basis.

b. Picayune will be required to restate its financial statements for year X1.

c. Picayune will be required to consolidate its year X2 financial statements and present a footnote in which Stewart's results for year X1 are consolidated on a proforma basis.

d. None of the Above