ADVANCED ACCOUNTING W/ACCESS >CUSTOM<
14th Edition
ISBN: 9781307594683
Author: Hoyle
Publisher: MCG/CREATE
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Chapter 1, Problem 2P
To determine
Introduction: The equity method of accounting is a method where the investment is recognized at cost initially and thereafter accounted for based on the change in the investor’s share in investee net assets. The share in the investee’s profit or loss is included in the investor's profit or loss.
The appropriate reason for the equity method from the given statements.
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Which of the following statements is NOT correct about the rights granted to common stockholders?
Group of answer choices
a. Stockholders may transfer their right to vote to a second party by means of a proxy.
b. Dividends due to common stockholders are cumulative.
c. Common stockholders have the right to elect a firm's directors.
d. In large, publicly traded firms, managers typically have some stock but their personal holdings are generally insufficient to win voting control.
One of the essential elements of control is power. According to PFRS 10, aninvestor has power if
A. The investor’s interest in the earnings of the investee is not fixed but rather varies depending on the level of the earnings.
B. The investor has existing rights that give it the current ability to direct the investee’s relevant activities.
C. The investor holds more than half of the outstanding shares of the investee.
D. The investor takes advantage of the fluctuation of price of the stock.
The preemptive right allows common stockholders to:
Group of answer choices
vote for the board of directors.
maintain a proportionate share of ownership in the firm.
increase their wealth by selling their rights.
preempt the protective covenants of bondholders.
convert common shares to preferred shares.
Chapter 1 Solutions
ADVANCED ACCOUNTING W/ACCESS >CUSTOM<
Ch. 1 - What advantages does a company achieve when it...Ch. 1 - A company acquires a rather large investment in...Ch. 1 - What accounting treatments are appropriate for...Ch. 1 - Prob. 4QCh. 1 - Why does the equity method record dividends from...Ch. 1 - Prob. 6QCh. 1 - Smith. Inc., has maintained an ownership interest...Ch. 1 - Prob. 8QCh. 1 - Because of the acquisition of additional investee...Ch. 1 - Prob. 10Q
Ch. 1 - Prob. 11QCh. 1 - Prob. 12QCh. 1 - In a stock acquisition accounted for by the equity...Ch. 1 - Prob. 14QCh. 1 - What is the difference between downstream and...Ch. 1 - Prob. 16QCh. 1 - Prob. 17QCh. 1 - What is the fair-value option for reporting equity...Ch. 1 - When an investor uses the equity method to account...Ch. 1 - Prob. 2PCh. 1 - Prob. 3PCh. 1 - Under fair-value accounting for an equity...Ch. 1 - When an equity method investment account is...Ch. 1 - Prob. 6PCh. 1 - Prob. 7PCh. 1 - Prob. 8PCh. 1 - Evan Company reports net income of $140,000 each...Ch. 1 - Prob. 10PCh. 1 - Prob. 11PCh. 1 - Prob. 12PCh. 1 - Prob. 13PCh. 1 - Prob. 14PCh. 1 - Prob. 15PCh. 1 - Prob. 16PCh. 1 - Prob. 17PCh. 1 - Prob. 18PCh. 1 - Prob. 19PCh. 1 - Prob. 20PCh. 1 - Prob. 21PCh. 1 - Prob. 23PCh. 1 - Matthew, Inc., owns 30 percent of the outstanding...Ch. 1 - Prob. 26PCh. 1 - Prob. 28PCh. 1 - Prob. 29PCh. 1 - Prob. 30PCh. 1 - Prob. 31P
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Similar questions
- Owners of preference shares often do not have: A Voting rights. B The right to sell their shares on the open market. C Preference to dividends. D Ownership rights to assets of the corporation.arrow_forwardIf the majority voting control partners in an entity are close to retirement, they may prefer more equity issued versus debt. True Falsearrow_forwardWhich of the following is true? 1. Shareholder activism requires the investors to exercise their voting rights. 2. Agency problem arises if the management does not hold the majority share in the firm (i.e., more than 50%). 3. Stock options and performance plans are examples of external market forces. 4. Agency costs are borne by all the stakeholders, including the shareholders.arrow_forward
- Participating preferred shareholders participate in the management of the company. share equally with the common shareholders in any extra dividends. fully participate in voting rights with common shareholders. have none of these options.arrow_forwardWhich of the following is NOT a characteristic of an ordinary share? a) The dividends are at the discretion of directors b) They give voting rights at meetings c) They are irredeemable d) Interest is accrued if the dividend is not paidarrow_forwardWhen an investor is deemed to have control" over an investee, GAAP requires presentation of consolidated financial statements. Which of the following would not be considered an indicator of control?\\nSelect one:\\nA. The investor owns 40% of the investee's stock and the rest is owned by the investee's founder.\\nB. The investor has majority interest in the investee.\\nC. Instead of owning stock, a company licenses technology to another company in an agreement allowing the licensor to appoint a majority of the licensee's board of directors.\\nD. The investor owns 40% of the Investee's stock and the rest is owned by a large number of small investors.arrow_forward
- 'Control' exists when the parent owns less than half of the voting power of an entity when: Select one alternative: the remaining investors act in unison to outvote the parent. other shareholders actively cooperate when exercising their votes. all other shareholdings are widely dispersed. other shareholders in the entity are passive investors.arrow_forwardAll of the following statements are correct, except, An investor may have significant influence even if it has 15% voting power. An investor may not have significant influence even if it has more than 20% voting power. Under the equity method that is used to account for investment in associates, cash dividends are treated as income. Share dividends do not result to a change in the total equity of the investee.arrow_forwardAll of the following statements are correct, except, a. An investor may have significant influence even if it has 15% voting power. b. An investor may not have significant influence even if it has more than 20% voting power. c. Under the equity method that is used to account for investment in associates, cash dividends are treated as income. d. Share dividends do not result to a change in the total equity of the investee.arrow_forward
- 16. Which of the following statements is NOT correct about the rights granted to common stockholders? a. Stockholders may transfer their right to vote to a second party by means of a proxy. b. Dividends due to common stockholders are cumulative. c. Common stockholders have the right to elect a firm's directors. d. In large, publicly traded firms, managers typically have some stock but their personal holdings are generally insufficient to win voting control.arrow_forwardAccounting for equity investments in other entities depends crucially on the level of influence the investor holds on the investee. we learned how to account for equity investments where the investors obtain control over the investees. after that we learned the case where the investors can exert 'significant influence' over the investees. In the former case, the investor is required to consolidate the investee's financial statements, while in the latter the investor shall apply the 'equity method' to account for the investment. Discuss whether it is more desirable to require uniform accounting treatment for equity investments regardless of the level of influence the investor holds on the investee. (and is uniform accounting treatment the questions mentioned means the consolidated accounting?) Thanksarrow_forwardA corporation cannot survive if the original owners are the only ones to invest in terms of equty financing. In short, external shareholders are always necessary. Group of answer choices True Falsearrow_forward
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