Turner Company owns 10% of the outstanding stock of ICA Company. During the current year, ICA paid a $5 million cash dividend on its common shares. What effect did this dividend have on Turner’s 2016 financial statements? Explain the reasoning for this effect.

Adams Industries holds 40,000 shares of FedEx common stock, which is not a large enough ownership interest to allow Adams to exercise significant influence over FedEx. On December 31, 2018, and December 31, 2019, the market value of the stock is $\$ 95$ and $\$ 100$ per share, respectively. What is the appropriate reporting category for this investment and at what amount will it be reported in the 2019 balance sheet?

Turner Company owns 10% of the outstanding stock of ICA Company. During the current year, ICA paid a $5 million cash dividend on its common shares. What effect did this dividend have on Turner’s 2021 financial statements? Explain the reasoning for this effect

Turner Company purchased $40 \%$ of the outstanding stock of ICA Company for $\$ 10,000,000$ on January 2,2018 . Turner elects the fair value option to account for the investment. During 2018, ICA earns $\$ 750,000$ of income and on December 30 pays a dividend of $\$ 500,000$. On December 31,2018 , the fair value of Turner's investment has increased to $\$ 11,500,000$. What journal entries would Turner make to account for this investment during 2018, assuming Turner will account for the investment similar to how it would account for a trading security?

The fair value of Wallis, Inc.’s depreciable assets exceeds their book value by $50 million. The assets have an average remaining useful life of 15 years and are being depreciated by the straight-line method. Park Industries buys 30% of Wallis’s common shares. When Park adjusts its investment revenue and the investment by the equity method, how will the situation described affect those two accounts?

S&L Financial buys and sells securities that it typically classifies as available-for-sale. On December 27, 2021, S&L purchased Coca-Cola bonds at par for $875,000 and sold the bonds on January 3, 2022, for$880,000. At December 31, the bonds had a fair value of $873,000. When it purchased the Coca-Cola bonds, S&L Financial decided to elect the fair value option for this investment. What pretax amounts did S&L include in its 2021 and 2022 net income as a result of this investment (ignoring interest)?

Cook Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2017.

1. Sales: quarter 1, 40,000 bags; quarter 2, 56,000 bags. Selling price is $60 per bag.
2. Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of$3.80 per pound and 6 pounds of Tarr at $1.50 per pound.
3. Desired inventory levels:

4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of$16 per hour.
5. Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter.
6. Interest expense is$100,000.
7. Income taxes are expected to be 30% of income before income taxes.

Your assistant has prepared two budgets: (1) the manufacturing overhead budget shows expected costs to be 125% of direct labor cost, and (2) the direct materials budget for Tarr shows the cost of Tarr purchases to be $297,000 in quarter 1 and$439,500 in quarter 2.

Instructions Prepare the budgeted multiple-step income statement for the first 6 months and all required operating budgets by quarters. (Note: Use variable and fixed in the selling and administrative expense budget.) Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.

Turner Company owns $10 \%$ of the outstanding stock of ICA Company. During the current year, ICA paid a $\$ 5$ million cash dividend on its common shares. What effect did this dividend have on Turner's 2018 financial statements? Explain the reasoning for this effect.

S&L Financial buys and sells securities that it typically classifies as available-for-sale. On December 27, 2016, S&L purchased Coca-Cola common shares for $875,000 and sold the shares on January 3, 2017, for$880,000. At December 31, the shares had a fair value of $873,000. When it purchased the Coca-Cola shares, S&L Financial decided to elect the fair value option for this investment. What pretax amounts did S&L include in its 2016 and 2017 earnings as a result of this investment?

Below are two unrelated situations relating to life insurance. Required: Prepare the appropriate journal entry for each situation. 1. Ford Corporation owns a whole life insurance policy on the life of its president. Ford Corporation is the beneficiary. The insurance premium is $25,000. The cash surrender value increased during the year from$2,500 to $4,600. 2. Petroleum Corporation received a$250,000 life insurance settlement when its CEO died. At that time, the cash surrender value was $16,000.

Wickum Corporation reports under IFRS, and recognized a $500,000 other-thantemporary impairment of an HTM debt investment in Right Corporation. Subsequently, the fair value of Wickum’s investment in Right increased by$300,000. How would Wickum account for that increase in fair value?

Fowler Inc. purchased $75,000 of bonds on January 1, 2018. The bonds pay interest semiannually and mature in 20 years, at which time the$75,000 principal will be paid. The bonds do not pay any amounts other than interest and principal. Fowler’s intention is to collect contractual cash flows and eventually sell the bonds within the next couple of years if the price is right. During 2018, the fair value of the bonds increased to $80,000. Fowler reports investments under IFRS No. 9. How much unrealized gain or loss will Fowler include in 2018 net income with respect to the bonds?

Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2012, by issuing 9,000 shares of $10 par value common stock. Haynes’s shares had a$15 per share fair value. On that date, Turner reported a net book value of $100,000. However, its equipment (with a five-year remaining life) was undervalued by$5,000 in the company’s accounting records. Also, Turner had developed a customer list with an assessed value of $30,000, although no value had been recorded on Turner’s books. The customer list had an estimated remaining useful life of 10 years.

The following figures come from the individual accounting records of these two companies as of December 31, 2012:

$$\begin{array}{lrr} & \text { Haynes } & \text { Turner } \\ \text { Revenues } & \$(600,000) & \$(230,000) \\ \text { Expenses } & 440,000 & 120,000 \\ \text { Investment income } & \text { Not given } & -0- \\ \text { Dividends paid } & 80,000 & 50,000 \end{array}$$

The following figures come from the individual accounting records of these two companies as of December 31, 2013:

$$\begin{array}{lcr} & \text { Haynes } & \text { Turner } \\ \text { Revenues } & \$(700,000) & \$(280,000) \\ \text { Expenses } & 460,000 & 150,000 \\ \text { Investment income } & \text { Not given } & -0- \\ \text { Dividends paid } & 90,000 & 40,000 \\ \text { Equipment } & 500,000 & 300,000 \end{array}$$

a. What balance does Haynes's Investment in Turner account show on December 31, 2013, when the equity method is applied? b. What is the consolidated net income for the year ending December 31, 2013? c. What is the consolidated equipment balance as of December 31, 2013? How would this answer be affected by the investment method applied by the parent? d. If Haynes has applied the initial value method to account for its investment, what adjustment is needed to the beginning of the Retained Earnings on a December 31, 2013, consolidation worksheet? How would this answer change if the partial equity method had been in use? How would this answer change if the equity method had been in use?

Fowler Inc. purchased $75,000 of bonds on January 1, 2021. The bonds pay interest semiannually and mature in 20 years, at which time the$75,000 principal will be paid. The bonds do not pay any amounts other than interest and principal. Fowler’s intention is to collect contractual cash flows and eventually sell the bonds within the next couple of years if the price is right. During 2021, the fair value of the bonds increased to $80,000. Fowler reports investments under IFRS No. 9. How much unrealized gain or loss will Fowler include in 2021 net income with respect to the bonds?