Question 6 If the cost method is used to account for a long-term investment in common stock, dividends received should be

credited to the Dividend Revenue account. debited to the Stock Investments account. recorded only when 20% or more of the stock is owned. credited to the Stock Investments account.

Question 7 If 10% of the common stock of an investee company is purchased as a long-term investment, the appropriate method of accounting for the investment is

determined by agreement with whomever owns the remaining 90% of the stock. the preparation of consolidated financial statements. the cost method. the equity method.

Question 8 When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

has significant influence on the investee and that the equity method should be used to account for the investment. has insignificant influence on the investee and that the cost method should be used to account for the investment. will prepare consolidated financial statements. should apply the cost method in accounting for the investment.

Question 9 Under the equity method, the Stock Investments account is increased when the

investee company reports net income. investee company pays a dividend. investee company reports a loss. stock investment is sold at a gain.

Question 10 Which of the following is the correct matching concerning an investor's influence on the operations and financial affairs of an investee?

% of Investor Ownership Presumed Influence

A.More than 50% Long-term B.Between 20%-50% Controlling C.Less than 20% Short-term D.Between 20%-50% Significant