Mars, Inc Follows IFRS for Its External Financial Reporting

question 54

Multiple Choice

Mars, Inc. follows IFRS for its external financial reporting. On January 1, 2015, Mars, Inc. purchased 25% of the outstanding stock of Jerome Company (which uses U.S. GAAP for its external financial reporting) for $790,000, and appropriately uses the equity method to account for its investment. Jerome Company reports the following activity for the year ended December 31, 2015:Net loss $60,000Dividends declared and paid 20,000Jerome Company uses the completed-contract method for revenue recognition related to its long-term construction contracts, while Mars, Inc. uses the percentage-of-completion method. Mars, Inc. determines that if Jerome Company had used the percentage-of-completion method, its income would have been $100,000 higher during 2015. What is the balance in the Investment in Jerome Company that will be reported on Mars, Inc.'s balance sheet at December 31, 2015?

• A) $825,000
• B) $770,000
• C) $790,000
• D) $785,000

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Definitions:

Efficiency

The optimal use of resources to achieve the best possible outcome.

Opportunities

Options or possibilities for individuals or firms to engage in beneficial activities or investments.

Equity

Fairness or justice in the way people are treated or how resources and wealth are distributed.

Efficiency

A measure of how well resources are used to produce goods and services without waste.