File: Chapter 01 - The Equity Method of Accounting for Investments Multiple Choice: [QUESTION] 1. Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2018 and paid dividends of $60,000 on October 1, 2018. How much income should Gaw recognize on this investment in 2018? A) $16,500. B) $ 9,000. C) $25,500. D) $ 7,500. E) $50,000. Answer: B Learning Objective: 01-01 Topic: Investments―Fair-value method Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Feedback: $60,000 × .15 = $9,000 [QUESTION] 2. Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for the investment. During 2018, Dew reported income of $250,000 and paid dividends of $80,000. There is no amortization associated with the investment. During 2018, how much income should Yaro recognize related to this investment? A) $24,000. B) $75,000. C) $99,000. D) $51,000. E) $80,000. Answer: B Learning Objective: 01-03 Topic: Equity method―Investment income Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA: BB Critical Thinking AICPA: FN Measurement Feedback: $250,000 × .30 = $75