1. On January 1, 2016, TXU Europe Corporation purchased 40%

1. On January 1, 2016, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2016 and 2017 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2016 and 2017 were, respectively, $60,000 and $75,000. The long−term investment will appear on TXU Europe Corporation’s December 31, 2017, balance sheet at:

A. $864,000

B. $836,000

C. $746,000

D. $890,000

2. Retail Energy Corporation paid $1,300,000 on January 1, 2017, to purchase 32% of the outstanding shares of Natural Gas Limited. In 2017 Natural Gas Limited reported $450,000 of net income and paid $100,000 in dividends. If this investment is accounted for using the equity method of accounting, what will be the impact on the books of Retail Energy Corporation?

A. the Investment account will be increased by $144,000

B. income of $144,000 will be recorded

C. the Investment account will be decreased by $144,000

D. income of $32,000 will be recorded

3. Under the equity method of accounting for investments, dividends paid by the investee are recorded by the investor as:

A. a credit to the Investment account of the investor company

B. no entry is made to record dividends in this accounting situation

C. a debit to the Investment account of the investor company

D. a credit to Dividend Revenue of the investor company

4. Corporations invest in a short−term investment:

A. to sell it for more than its cost

B. to generate a higher profile

C. to invest excess cash temporarily and to increase income

D.  to park cash temporarily