1 On January 3 2016 Pop Company purchases a 15

1. On January 3, 2016, Pop Company purchases a 15 percent interest in Son Corporation’s common stock for $50,000 cash. Pop accounts for the investment using the cost method. Son’s net income for 2016 is $20,000, but it declares Stock Investments-Investor Accounting and Reporting 53 no dividends. In 2017, Son’s net income is $80,000, and it declares dividends of $120,000. What is the correct balance of Pop’s Investment in Son account at December 31, 2017?

a. $47,000

b. $50,000

c. $62,000

d. $65,000

2. Son Corporation’s stockholders’ equity at December 31, 2016, 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, 2017, Son sells 10,000 shares of previously unissued $100 par common stock to Pop Corporation for $1,400,000. On this date the recorded book values of Son’s assets and liabilities equal fair values. Goodwill from Pop’s investment in Son at the date of purchase is:

a. $0

b. $50,000

c. $300,000

d. $400,000

3. On January 1, Pop Company paid $300,000 for a 20 percent interest in Son Corporation’s voting common stock, at which time Son’s stockholders’ equity consisted of $600,000 capital stock and $400,000 retained earnings. Pop was not able to exercise any influence over the operations of Son and accounted for its investment using the cost method. During the year, Son had net income of $200,000 and paid dividends of $150,000. The balance of Pop’s Investment in Son account at December 31 is:

a. $330,000

b. $310,000

c. $307,500

d. $300,000

4. Pop Corporation owns a 40 percent interest in Son Products acquired several years ago at book value. Son’s income statement contains the following information (in thousands):

Income from continuing operations …………………….. $200

Discontinued operations loss ……………………………. (50)

Net income …………………………………………….. $150

Pop should report income from Son in its income from continuing operations at:

a. $20,000

b. $60,000

c. $80,000

d. $100,000

1 On January 3 2016 Pop Company purchases a 15