1.Analyzing and Interpreting Equity Method Investments

Concord Company purchases an investment in Bloomingdale Company at a purchase price of $1.5 million cash, representing 30% of the book value of Bloomingdale. During the year, Bloomingdale reports net income of $200,000 and pays cash dividends of $30,000. At the end of the year, the market value of Concord's investment is $1.8 million.

a. What amount does Concord report on its balance sheet for its investment in Bloomingdale?

b. What amount of income from investments does Concord report?

c. Concord's $249,000 unrealized gain in the market value of the Bloomingdale investment (choose one):

(1) Is not reflected on either its income statement or balance sheet.

(2) Is reported in its current income.

(3) Is reported on its balance sheet only.

(4) Is reported in its accumulated other comprehensive income.

2. Interpreting a Spin-Off Disclosure

On October 11, 2016, Forbes magazine (at forbes.com) reported the following.

ConAgra Foods, Inc., announced that the separation of its frozen potato portfolio, Lamb Weston Holdings, Inc. (NYSE: "LW"), will be effectuated on November 9, 2016, the distribution date for the transaction. The spin-off will entail a 100% distribution of LW common shares to CAG's shareholders, as of record date November 1, 2016. Shareholders of CAG will receive one share of LW for every three shares of CAG held as of the record date.

Next to each statement, select whether this describes a spin-off or a split-off.

a.The parent distributes to its stockholders, the shares of the subsidiary as a dividend.

Spin-off or Split-off ?

b. The parent buys back its own stock using the shares of the subsidiary instead of cash.

Spin-off or Split-off ?

c. As a result of this transaction, the parent's treasury stock account increased and the equity method investment account decreased.

Spin-off or Split-off ?

d. As a result of this transaction, the parent's retained earnings account and equity method investment account decreased.

Spin-off or Split-off ?

3. What effects did ConAgra's spin-off of Lamb Weston Holdings have on ConAgra's balance sheet and income statement?

Select the correct statement.

a. There was no effect on ConAgra's income statement. On ConAgra's balance sheet, assets and stockholders' equity decreased.

b. Net income decreased on Congra's income statement. On ConAgra's balance sheet, assets and stockholders' equity decreased.

c. There was no effect on ConAgra's income statement. On ConAgra's balance sheet, assets decreased and stockholders' equity increased.

d. Net income decreased on Congra's income statement. On ConAgra's balance sheet, assets increased and stockholders' equity decreased.