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1. Faith Company acquired 100% of Installed Components by issuing 200,000 shares at $2 per share. The market value of the stock is $20 per share. Faith also paid $20,000 in meeting fees related to the acquisition. Faith's journal entry to record the acquisition would include a credit to additional paid-in capital of $3,600,000, a credit to common stock of $4,000,000, a credit to cash of $4,020,000, and a debit to Equity Investment of $34,020,000.
2. An investor who owns 30% of the common stock of an investee is most likely to exercise significant influence requiring the use of the equity method when: a. The investor and investee sign an agreement under which the investor surrenders significant rights. b. The investor tries and fails to obtain representation on the investee's board of directors. c. The investor tries and fails to obtain financial information from the investee. d. The second largest investor owns only 1% of the investee's outstanding stock.
3. Angelo uses the equity method to account for its investment in Fischer on January 1. Of the acquisition, how do these excesses of fair values over book values affect Angelo's Equity Income from Firm? a. Building: Decrease, Land: No Effect. b. Building: Decrease, Land: Decrease. c. Building: Increase, Land: Increase. d. Building: Increase, Land: No Effect.
4. Shannon Company had common stock of $160,000 and retained earnings of $234,000. Gus, Inc. had stock of $350,000 and retained earnings of $376,000. On January 1, 2021, Gus issued 35,000 shares of stock with a $1 par value and a $15 fair value for all of Shannon Company's outstanding common stock. Immediately after the combination, what were the consolidated net assets? a. $919,000. b. $1,251,000. c. $1,155,000. d. $84,000.
5. If a 30% acquisition is made at a price above book value due to an undervalued patent and the investor has significant influence over the investee, what will be the relationship between the Equity Investment and the investee's stockholders' equity?
