Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 1, 19xl, Bennett Company paid $1,000,000 to acquire all of the outstanding stock of Frazier Company. At that date the balance sheet of

On January 1, 19xl, Bennett Company paid $1,000,000 to acquire all of the outstanding stock of Frazier Company. At that date the balance sheet of Frazier Company showed total assets of $1,500,000, total liabilities of $500,000, common stock of $700,000, and retained earnings of $300,000. During 19xl there were no transactions between Bennett Company and Frazier Company except for a $40,000 dividend paid by Frazier. The final net income reported on Frazier Company's individual income statement for the year ended December 31, 19x1, V'C.S $100,000.

1. Which of the following is true concerning the financial statements prepared as of December 31, 19x1?

A. If the Bennett Company uses the cost method to record its investment in Frazier Company, the balance in the Investment in Frazier Company account on Bennett Company's books will be $1,100,000.

B. If the Bennett Company uses the equity method to record its investment in Frazier Company, the balance in the Investment in Frazier Company account on Bennett Company's books will be $1,060,000.

C. If the Bennett Company uses the cost method, the net income from its investment in Frazier Company for the year on its individual income statement will be $100,000.

D. If the Bennett Company uses the equity method, the net income from its investment in Frazier Company for the year on its individual income statement will be $40,000.

2. When a consolidated balance sheet is prepared from the separate balance sheets on December 31, 19x1, which one of the following sets of elimination entries will be used?

A. If Bennett Company uses the equity method to account for its investment in Frazier Company, 1) debit Investment in Frazier Company, $100,000, and credit Retained Earnings, $100,000; and 2) debit Common Stock, $700,000, and Retained Earnings, $300,000, and credit Investment in Frazier Company, $1,000,000.

B. If Bennett Company uses the cost method to account for its investment in Frazier Company, 1) debit Investment in Frazier Company, $100,000, and credit Retained Earnings, $100,000; and 2) debit Common Stock, $700,000, and Retained Earnings, $300,000, and credit Investment in Frazier Company, $1,000,000.

C. If Bennett Company uses the cost method to account for its investment in Frazier Company, 1) debitlnvestment in Frazier Company, $40,000, and credit Retained Earnings, $40,000; and 2) debit Common Stock, $700,- 000, and Retained Earnings, $260,000, and credit Investment in Frazier Company, $960,000.

D. If Bennett Company uses the equity method to account for its investment in Frazier Company, 1) debit Investment in Frazier Company, $100,000, and credit Retained Earnings, $100,000; and 2) debit Common Stock, $700,000, and Retained Earnings, $360,000, and credit Investment in Frazier Company, $1,060,000.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Assurance Risk And Governance

Authors: Michael Büchling

1st Edition

1485131618, 9781485131618

More Books

Students also viewed these Accounting questions