Multiple Choice: Identify the choice that best completes the statement or answers the question.

1. Assume that Franklin Company holds 20% of the outstanding stock of Beverly Inc., which of the following

statements applies?

a. Franklin must use the fair value method unless it can clearly demonstrate the ability

to exercise "significant influence" over Beverly Inc.

b. Franklin should always use the fair value method to account for its investment in Beverly Inc.

c. Franklin should use the equity method to account for its investment unless

circumstances indicate that it is unable to exercise "significant influence" over

Beverly Inc.

d. Franklin should always use the equity method to account for its investment.

2. When examining the performance obligations of a contract, which of the following is the best measure of

fair value?

a. expected cost plus a margin.

b. adjusted market assessment.

c. residual value.

d. standalone selling price.

3. Taxable income of a corporation

a. differs from accounting income due to differences in intraperiod allocation between

the two methods of income determination.

b. is reported on the corporation's income statement.

c. differs from accounting income because companies use the full accrual method

for financial reporting but use the modified cash basis for tax reporting.

d. is based on generally accepted accounting principles.

4. Compost, Inc. acquired 30% of Food Corp.'s voting stock on January 1, 2019 for $100,000. During 2019, Food Corp. earned $40,000 and paid dividends of $25,000. Compost's 30% interest in Food Corp. gives Compost the ability to exercise significant influence over Food Corp's operating and financial policies.

On July 1, 2020, Compost sold half of its stock in Food Corp. for $66,000 cash.

Before income taxes, what amount should Compost include in its 2019 Income Statement as a result of the investment?

a. $12,000

b. $7,500

c. $40,000

d. $25,000

5. The Billings on Construction in Process account is reported:

a. in the current liability section only.

b. in either the current asset or current liability section.

c. as a revenue on the income statement.

d. in the current asset section only.

6. The new revenue recognition standard, Revenue from Contracts with Customers,

a. adopts a revenue-gain approach for revenue recognition.

b. adopts "earned and realized" criteria.

c. adopts an asset-liability approach for revenue recognition.

d. adopts criteria that de-emphasize the importance of contracts with customers.

7. Unrealized holding gains and losses on equity securities are recognized for

a. securities where a company has holdings of more than 50%.

b. securities where a company has holdings of more than 20%.

c. securities where a company has holdings of between 20% and 50%.

d. securities where a company has holdings of less than 20%.

8. As a result of differences between depreciation for financial-reporting purposes and tax purposes, the financial-reporting basis of Bancroft Co.'s sole depreciable asset, acquired in 2017, exceeded its tax basis by $250,000 at December 31, 2017. This difference will reverse in future years. The enacted tax rate is 30% for 2017, and 40% for future years. Bancroft has no other temporary differences.

In its December 31, 2017 balance sheet, how should Bancroft report the deferred tax effect of this difference?

a. As an asset of $75,000.

b. As an asset of $100,000.

c. As a liability of $100,000.

d. As a liability of $75,000.

9. Coyote Company, a manufacturing company, produces large pieces of machinery. Coyote sells a large piece of machinery to Piper Corporation for use in a new production plant. Though Piper could install the equipment on its own, management decides to include installation of the machinery in its contract with Coyote. Piper agrees to a total contract price of $850,000 for both the equipment and the installation.

Coyote does not offer a discount on the machinery if they complete the installation. The fair value of the equipment is $850,000 and its cost is $760,000. The fair value of the installation is $50,000 and the cost of the labor to Coyote is $40,000. How much of the contract price should Coyote allocate to the equipment and installation respectively? If a proportion is necessary, round to the nearest one hundredth of a percent (e.g. .####) and round all answers to the nearest dollar.

Equipment Installation

a. $807,500 $42,500

b. $800,000 $50,000

c. $802,740 $47,260

d. $850,000 $0

10. On January 10, 2017, Box, Inc. purchased marketable debt securities of Knox, Inc. and Scot, Inc. Box classified both securities as a noncurrent available-for-sale investments.

At December 31, 2017, the cost of each investment was greater than its fair market value. The loss on the Knox investment was considered permanent and that on Scot was considered temporary. How should Box report the effects of these investing activities in its 2017 Income Statement?

I. Excess of cost of Knox stock over its market value.

II. Excess of cost of Scot stock over its market value.

a. No Income Statement effect.

b. An unrealized loss equal to I plus II.

c. An unrealized loss equal to I only.

d. A realized loss equal to I only.