Acker Corporation Acquires 30% of the Outstanding Voting Common Shares

question 64

Multiple Choice

acker Corporation acquires 30% of the outstanding voting common shares of the Insight Corporation for $600,000.Packer Corporation acquires the investment in Insight Corporation by buying previously issued shares of Insight Corporation from other investors. Between the time of the acquisition and the end of Packer Corporation's next accounting period, Insight Corporation reports earnings of $80,000; and pays a dividend of $30,000 to holders of its common stock.
Insight Corporation reports earnings of $100,000 and pays dividends of $40,000 during the subsequent accounting period.
Assume now that Packer Corporation sells one-fourth of its investment in Insight Corporation for $165,000.The entry is as follows:

• A)Cash.................. 165,000
• Investment in Stock of Insight Corporation.............158,250
• Gain on Sale of Investment in Stock of Insight Corporation..........6,750
• B)Investment in Stock of Insight Corporation...............158,250
• Gain on Sale of Investment in Stock of Insight Corporation....6,750
• Cash......................... . ..165,000
• C)Cash................... 165,000
• Investment in Stock of Insight Corporation.....................158,250
• Equity in Earnings of Affiliate ............. 6,750
• D)Investment in Stock of Insight Corporation...............158,250
• Equity in Earnings of Affiliate .............. 6,750
• Cash......................165,000
• E)Investment in Stock of Insight Corporation...............158,250
• Gain on Sale of Investment in Stock of Insight Corporation.... 6,750
• Equity in Earnings of Affiliate ....... 165,000

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Definitions:

Interest Rate

The percentage of the principal charged by a lender for the use of its money or the rate at which interest is paid by a borrower for the use of money.

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The action of using up a good or service, typically resulting in a decrease in available quantity.

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The use of goods and services by households. It is an important component of GDP and a direct indicator of consumer spending behavior.

Income

Earnings received by a person or entity, typically through work, investments, or business ventures.