1.

When a company holds between 20% and 50% of the outstanding ordinary shares of an investee, which of the following statements applies?

A. The investor should always use the equity method to account for its investment.

B. The investor should always use the fair value method to account for its investment.

C. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee.

D. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee.

2.

Patty Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2019, paying $376,100. The bonds mature January 1, 2029; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 12%. Patty Company uses the effective-interest method and holds these bonds for collection. On July 1, 2019, Patty Company should increase its Debt Investments account for the Scott Co. bonds by:

A. $2,566.00

B. $1,371.00

C. $4,000.00

D. $5,132.00

3.

Under the net method, purchase discounts lost are:

A. Deducted from discount income.

B. Added to accounts payable.

C. Included in interest expense.

D. Included in purchases.

4.

Permanent accounts would not include:

A. Accumulated depreciation.

B. Inventory.

C. Cost of goods sold.

D. Current liabilities.

5.

Arizona Desert Homes (ADH) constructed a new subdivision during 2018 and 2019 under contract with Cactus Development Co. Relevant data are summarized below:

Contract amount $3,000,000 Cost in 2018: $1,200,000 Estimated total costs to complete : $2,000,000 Billings in 2018: $1,500,000

ADH uses the percentage-of-completion method to recognize revenue. In its December 31, 2018, statement of financial position, ADH would report:

A. The asset, cost and profits in excess of billings, of $300,000.

B. The liability, billings in excess of cost, of $300,000.

C. The liability, billings in excess of cost, of $1,1250,000.

D. The asset, cost and profits in excess of billings, of $1,125,000.