16 On January 1, 2015, the Regal Company purchased 30% of the outstanding voting stock of the Air Corporation for $300,000; the book value of Air's net assets at the date of purchase was $900,000. Regal was willing to pay more than the book value of the acquired shares because Air's depreciable assets with a ten-year remaining life were undervalued. Regal uses straight-line depreciation. During 2015, Air reported net income of $75,000 and paid dividends of $30,000.

The income reported by Regal during 2015 pertaining to the Air investment was:

$ 9,000.

$22,500.

$31,500.

$19,500.

17 When two companies form a joint venture and each company owns exactly 50% of the joint venture the:

cost method is used.

equity method is used and line-by-line consolidation is required.

equity method is used and line-by-line consolidation is not required.

company that has more net assets is deemed the parent.

18 The difference between the amortized cost basis of a debt security and the present value of expected cash flows for that security discounted at the effective interest rate implicit in the debt instrument when it was originally acquired is called the:

amount representing the credit loss.

amount related to all other factors.

other-than-temporary impairment.

subsequent recovery in fair value.

19 Which of the following properly describes a difference between the accounting for a trading security relative to the accounting for an available-for-sale security for a particular investment?

Total stockholders' equity at any point in time differs between the two alternatives.

Total assets at any point in time differs between the two alternatives.

Net income for a particular period may differ between the two alternatives.

Net income over the life of the investment will differ.

20 Which of the following criteria is applicable with respect to determining when a variable interest entity (VIE) must be consolidated into the sponsoring firm's financial statements?

A consolidation must occur if the firm has a controlling financial interest and is the VIE's primary beneficiary.

A consolidation must occur if the firm is entitled to receive all of the VIE's residual returns.

A consolidation must occur regardless of the risk of loss exposure.

A consolidation must occur if the sponsoring firm owns more than 50% of the VIE's equity.