BA 459
Advanced Accounting: Beams, Clement, Anthony, Lowensohn
Floyd A. Beams
Robin P. Clement
Joseph H. Anthony
Suzanne Lowensohn
9th Edition 10th Edition
Chapter 2
Exercise 2-7 (E2-7)
General problems
1. On January 3, 2006, Harrison Company purchases a 15% interest in Bennett Corporation’s common stock for $50,000 cash. Harrison accounts for the investment using the cost method. Bennett’s net income for 2006 is $20,000, but it declares no dividends. In 2007, Bennett’s net income is $80,000, and it declares dividends of $120,000. What is the correct balance of Harrison’s Investment in Bennett account at December 31, 2007?
2. Screwsbury Corporation’s stockholders’ equity at December 31, 2006, follows (in thousands):
Capital stock, $100 par $3,000
Additional paid-in capital 500
Retained earnings 500
Total stockholders’ equity $4,000
On January 3, 2007, Screwsbury sells 10,000 shares of previously unissued $100 par common stock to Pannell Corporation for $1,400,000. On this date the recorded book values of Screwsbury’s assets and liabilities equal their fair values. Goodwill from Pannell’s investment in Screwsbury at the date of purchase is:
3. On January 1, Leighton Company paid $300,000 for a 20% interest in Monroe Corporation’s voting common stock, at which time Monroe’s stockholders’ equity consisted of $600,000 capital stock and $400,000 retained earnings. Leighton was not able to exercise any influence over the operations of Monroe and accounted for its investment in Monroe using the cost method. During the year, Monroe had net income of $200,000 and paid dividends of $150,000. The balance of Leighton’s Investment in Monroe account at December 31 is:
4. Jollytime Corporation owns a 40% interest in Krazy Products acquired several years ago at book value. Krazy Products’ income statement contains the following information (in thousands):
Income before extraordinary item $200
Extraordinary loss 50
Net income $150
Jollytime should report income from Krazy Products in its income from continuing operations at:
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