Question #49 - Reading 8 Intercorporate Investments

Reading: Reading 8 Intercorporate Investments

PDF File: Reading 8 Intercorporate Investments.pdf

Page: 22

Status: Correct

Correct Answer: A

Shared Context

- If Anderson Company accounts for the Birschbach Company shares using the equity method, the carrying amount of these shares on Anderson's balance sheet at the end of 2012 is closest to: A) $2.8 million. B) $2.6 million. C) $3.5 million.

Question

For the year 2012, the investment income that Anderson Company reports on its investment in Birschbach Company shares, if Anderson classifies the shares as fair value through OCI, is:

Answer Choices:

A. $250,000

B. $150,000

C. $100,000

Explanation

Under the fair value through OCI classification, unrealized gains and losses are not recognized on the income statement, so the only impact on the income statement is the dividend received: (100,000 shares)($1.50 per share) = $150,000

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