fundamental of ad

number 9

question number 9

operating and financing policies. Johnson reports assets on that date of $1,400,000 with liabilities of $500,000. One building with a seven-year remaining life is undervalued on Johnson's books by $140,000. Also, Johnson's book value for its trademark (10-year remaining life) is undervalued by S210.000. During the year, Johnson reports net income of $90,000 while declaring dividends of $30,000. What is the Investment in Johnson Company balance (equity method) in Franklin's finan- cial records as of December 31? a. $504,000 b. $507,600 c. $513,900 d. $516,000 9. Evan Company reports net income of $140,000 each year and declares an annual cash dividend of $50,000. The company holds net assets of $1,200,000 on January 1, 2017. On that date, Shalina purchases 40 percent of Evan's outstanding common stock for $600,000, which gives it the ability to significantly influence Evan. At the purchase date, the excess of Shalina's cost over its propor tionate share of Evan's book value was assigned to goodwill. On December 31, 2019, what is th Investment in Evan Company balance (equity method) in Shalina's financial records? a. $600,000 b. $660,000 c. $690,000 d. $708,000 10. Perez, Inc., applies the equity method for 95 percent investment in Senior, Inc. During 20 Perez sold goods with a 40 percent gross Senior, which sold all of these goods in 2 How should Perez report the effect of intra-entity sale on its 2018 income statement? a. Sales and cost of goods sold should be reduced by the amount of intra-entity sales. b. Sales and cost of goods sold should be reduced by 25 percent of the amount of intra-entity c. Investment income should be reduced by 25 percent of the gross profit on the amount of entity sales. No adjustment is necessary. Partner, Inc., owns 30 percent of Watkins and applies the equity method. During the curret Panner buys inventory costing $54,000 and then sells it to Watkins for $90,000. At the end year, Watkins still holds only $20,000 of merchandise. What amount of gross profit must defer in reporting this investment using the equity method? a. $2,400 b. $4,800 c. $8,000 d. $10,800 12. Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2017, for $530,000. method of accounting is to be used. Steinbart's net assets on that date were $1.2 million of cost over book value is attributable to a trade name with a 20-year remaining life onlying inventory to Alex as follows