AICPA

63. Select the incorrect statement.

a. The cost method of accounting for an investment in a subsidiary recognizes the legal fact that
the parent and subsidiary are one economic unit.
b. The net cumulative unrealized gains and losses on investments in equity securities classified as
FVOCI and are accounted for under the cost method are usually measured by the difference
between cost and current selling price.
c. Under the equity method of accounting for long-term investments in equity securities, the
investor's investment account is decreased by all cash dividends received from the investee.
d. The equity method of accounting for long-term investments in equity securities is based on the
presumption that the investor owns a sufficient number of the outstanding voting shares of
another company to exercise significant influence over the operating and financial policies of
the other company.

64. Which of the following statement is the correct statement?

a. At the acquisition date of a long-term investment, the entry would be the same whether the
investor uses PFRS 9 or the equity method under PAS 28.
b. Under PAS 27, an investment in a subsidiary is shown as an asset, while under the equity
method, it is shown as part of equity.
c. Long-term investments are classified as long-term only because they are not readily marketable.
d. Long-term investments in equity securities are written down only when there has been a
material and apparently permanent decline in the market value of the investment below its
cost.
e. Impairment losses on investments in associates are not accounted for under PAS 28.

65. The following statements relate to the accounting for investments in equity instruments.
I. Whenever an investment in marketable equity securities does not qualify for accounting using
the equity method, the investor is required to recognize as dividend income cash dividends
received from the investee.
II. The cost measurement for equity investments is permitted in separate financial statements.
III. An investor may still be able to exercise significant influence over an investee, even if the
investment is less than 20% of the voting stock of the investee.
IV. No adjustment to the investment account is made when changing from the equity to the fair
value measurement, or vice versa.
a. I, II b. I, II, III c. I, III d. I, II, IV

66. In its financial statements, Musang, Inc. uses the cost measurement of accounting for its 15%
ownership of Kalinga Coffee Co. At December 31, 20x1, Musang has a receivable from Kalinga
Coffee. How should the receivable be reported in Musang’s December 31, 20x1 statement of
financial position? a. The total receivable should be reported separately.
b. The total receivable should be included as part of the investment in Kalinga Coffee, without
separate disclosure.
 c. 85% of the receivable should be reported separately, with the balance offset against Kalinga
Coffee’s payable to Musang.
d. The total receivable should be offset against Kalinga Coffee’s payable to Musang, without
separate disclosure.
(AICPA)

67. When the equity method is used to account for investments in common stock, which of the
following affects the investor’s reported investment income? Equipment amortization related to
purchase Cash dividends from investee
a. Yes Yes
b. No Yes
c. No No
d. Yes No
(AICPA)