Q3: Choose correct answer and show calculation: 1. Khaled Corporation accounts for its 40% investment in Fahad Company using the equity method. On the date of the original investment, fair values were equal to the book values except for a patent, which cost Khaled an additional $40,000. The patent had an estimated life of 10 years. Fahad has a steady net income of $20,000 per year and consistently pays out 40% of its net income as dividends to its shareholders. The net change in the investment account for each full year will be a debit of $800. A) TRUE B) FALSE. 2. SAMI Corporation purchased 100,000 previously unissued shares of RAMI Company's $10 par value common stock directly from RAMI for $2,200,000. RAMI'S stockholders' equity immediately before the investment by SAMI consisted of $3,000,000 of common stock and $4,800,000 in retained earnings. What is SAMI'S book value of equity in the net assets of RAMI? A) $2,200,000 B) $2,500,000 C) $3,000,000 D) $3,333,000 3. SAMA Corporation uses the fair value method of accounting for its investment in RAMA Company. Which one of the following events would not affect the Investment in RAMA Co. account? A) Investee losses B) Investee dividend payments C) An increase in the investee's share price from last period D) Unrealized gains and losses from the available-for-sale securities classification 4. Which method of accounting will generally be used when one company purchases less than 20% of the outstanding stock of another company? A) Only the fair value method may be used. B) Only the equity method may be used. C) Either the fair value method or the equity method may be used, depending upon the relationship between the companies. D) Only the acquisition method