4. The underlying equity of an investment at acquisition:

a Is recorded in the investment account under the equity method

b Minus the cost of the investment is assigned to goodwill

c Is equal to the fair value of the investees net assets times the percentage acquired

d Is equal to the book value of the investees net assets times the percentage acquired

5. Son Corporation is a 25 percentowned equity investee of Pop Corporation. During the current year, Pop receives $12,000 in dividends from Son. How does the $12,000 dividend affect Pops financial position and results of operations?

a Increases assets

b Decreases investment

c Increases income

d Decreases income

6. Pam Company owns 25 percent of Sun Corporation. During the year, Sun had net earnings of $450,000 and paid dividends of $28,000. Pam mistakenly recorded these transactions using the cost method rather than the equity method. What effect would this have on the investment account, net earnings, and retained earnings, respectively?

a Understate, overstate, overstate

b Overstate, understate, understate

c Overstate, overstate, overstate

d Understate, understate, understate

7. A corporation exercises control over an affiliate in which it holds a 25 percent common stock interest. If its affiliate completed a fiscal year profitably but paid no dividends, how would this affect the investor?

a Result in an increased current ratio

b Result in increased earnings per share

c Increase several turnover ratios

d Decrease book value per share