The summarized balance sheets of Elston Company and Alley Company as of December 31, 2004 are as follows:

Elston Company

Balance Sheet

December 31, 2004

Assets800,000

Liabilities100,000

Capital stock400,000

Retained earnings300,000

Total equities800,000

Alley Company

Balance Sheet

December 31, 2004

Assets600,000

Liabilities150,000

Capital stock370,000

Retained earnings80,000

Total equities600,000

1. If Elston Company acquired a 20% interest in Alley Company on December 31, 2004 for 130,000 and the fair value method of accounting for the investment were used, the amount of the debit to Investment in Alley Company Stock would have been

a.90,000.

b.74,000.

c.130,000.

d.120,000.

2. If Elston Company acquired a 30% interest in Alley Company on December 31, 2004 for 150,000 and the equity method of accounting for the investment were used, the amount of the debit to Investment in Alley Company Stock would have been

a.190,000.

b.150,000.

c.120,000.

d.135,000.

3. If Elston Company acquired a 20% interest in Alley Company on December 31, 2003 for 90,000 and during 2004 Alley Company had net income of 50,000 and paid a cash dividend of 20,000, applying the fair value method would give a debit balance in the Investment in Alley Company Stock account at the end of 2004 of

a.74,000.

b.90,000.

c.100,000.

d.None of these

4. If Elston Company acquired a 30% interest in Alley Company on December 31, 2004 for 135,000 and during 2005 Alley Company had net income of 50,000 and paid a cash dividend of 20,000, applying the equity method would give a debit balance in the Investment in Alley Company Stock account at the end of 2005 of

a.135,000.

b.144,000.

c.150,000.

d.145,000.

5.Elston Co. acquires 30% interest in Alley Company on December 31, 2004. The carrying amount of Alley's net assets on December 31, 2004 approximates its fair value. If the acquisition did not result to any implied goodwill, how much is the acquisition cost of the investment?

a.135,000.

b.144,000.

c.150,000.

d.145,000.

6.Elston Co. acquires 30% interest in Alley Company on December 31, 2004. The carrying amount of Alley's net assets on December 31, 2004 approximates its fair value. If the acquisition did not result to any implied goodwill, how much is the acquisition cost of the investment?

a.135,000.

b.144,000.

c.150,000.

d.145,000.

7.Elston Co. acquired 25% interest in Alley Company many years ago. The acquisition did not result to any goodwill. At the time of acquisition, the carrying amount of Alley's net assets approximates its fair value. There have been no impairment losses on the investment. In principle, the equity method would result to a carrying amount of the investment on December 31, 2004 of

a.112,500.

b.135,000.

c.144,000.

d.Cannot be determined; given information is insufficient

8.Elston Co. acquired 25% interest in Alley Company many years ago. The acquisition did not result to any goodwill. At the time of acquisition, the carrying amount of Alley's net assets approximates its fair value. There have been no impairment losses on the investment. Alley Company reported profit of 200,000 and declared dividends of 40,000 in 2004. Theoretically, the carrying amount of the investment on December 31, 2003 would approximate which of the following amounts?

a.72,500.

b.98,500

c.112,500.

d.Cannot be determined; given information is insufficient

9.Elston Co. acquired 25% interest in Alley Company many years ago. The acquisition did not result to any goodwill. At the time of acquisition, the carrying amount of Alley's net assets approximates its fair value. There have been no impairment losses on the investment. The carrying amount of the investment on January 1, 2004 is 98,500. Alley Company declared dividends of 40,000 in 2004. If the proportionate share of Elston in the net assets of Alley at December 31, 2004 reflects the carrying amount of Elston's investment, how much would have been Alley's profit in 2004?

a.200,000.

b.24,000

c.96,000.

d.Cannot be determined; given information is insufficient

10.Karter Company purchased 200 of the 1,000 outstanding shares of Flynn Company's common stock for 180,000 on January 2, 2004. During 2004, Flynn Company declared dividends of 30,000 and reported earnings for the year of 120,000. If Karter Company uses the equity method of accounting for its investment in Flynn Company, its Investment in Flynn Company account at December 31, 2004 should be

a.174,000.

b.180,000.

c.198,000.

d.204,000.