Can someone check my answers.
-For each of the following eight situations, select the best answer concerning accounting for investments:
(A.) Increase the investment account.
(B.) Decrease the investment account.
(C.) Increase dividend revenue.
(D.) No adjustment necessary.
1.) Income reported by 40% owned investee. My answer A
2.) Income reported by 10% owned investee. My answer D.
3.) Loss reported by 40% owned investee. My answer B.
4.) Loss reported by 10% investee. My answer D
5.) Dividends received from 40% investee. My answer B
6.) Dividends received from 10% investee. My answer C
7.) Purchase of additional shares of investee. My answer A
8.) Unrealized-ending inventory profits using the equity method. My answer C
To check your answers for each situation concerning accounting for investments, here's a breakdown of the correct options:
1.) Income reported by a 40% owned investee:
Correct answer: (B) Decrease the investment account.
Explanation: When the investee reports income, it implies that the investor's share of the income should be recognized in the investor's financial statements. Since the investment account is increased when recognizing income, the correct answer is to decrease the investment account.
2.) Income reported by a 10% owned investee:
Correct answer: (D) No adjustment necessary.
Explanation: When the investee reports income, the investor only recognizes its share of the income if it exceeds a materiality threshold. Since this is a 10% ownership with no significant control or influence, no adjustment is necessary.
3.) Loss reported by a 40% owned investee:
Correct answer: (B) Decrease the investment account.
Explanation: When the investee reports a loss, it implies that the investor's share of the loss should be recognized in the investor's financial statements. Therefore, the correct answer is to decrease the investment account.
4.) Loss reported by a 10% owned investee:
Correct answer: (D) No adjustment necessary.
Explanation: Similar to the second situation, when the investee reports a loss, the investor recognizes its share of the loss only if it exceeds a materiality threshold. Since this is a 10% ownership with no significant control or influence, no adjustment is necessary.
5.) Dividends received from a 40% investee:
Correct answer: (C) Increase dividend revenue.
Explanation: Dividends received from an investee should be recognized as revenue by the investor. Therefore, the correct answer is to increase dividend revenue.
6.) Dividends received from a 10% investee:
Correct answer: (D) No adjustment necessary.
Explanation: Dividends received from an investee with a 10% ownership are recognized as revenue without any adjustments necessary.
7.) Purchase of additional shares of an investee:
Correct answer: (A) Increase the investment account.
Explanation: When an investor purchases additional shares of an investee, it increases its ownership percentage. Therefore, the correct answer is to increase the investment account.
8.) Unrealized-ending inventory profits using the equity method:
Correct answer: (D) No adjustment necessary.
Explanation: The equity method is used to account for investments where the investor has significant influence over the investee. Under this method, unrealized profits on inventory are not recognized until the investee sells the inventory to an unrelated party. Therefore, no adjustment is necessary.
Please review these explanations and compare them to your initial answers to verify their accuracy.