Enter the letter corresponding to the response that best completes each of the following statements or questions.

1			On January 1, 2006, Normal Plastics bought 15% of Model, Inc.'s common stock for $900,000. Model's net income for the years ended December 31, 2006, and December 31, 2007, were $600,000 and $1,500,000, respectively. During 2007, Model declared a dividend of $420,000. No dividends were declared in 2006. How much should Normal show on its 2007 income statement from this investment?
			A)	$0.
			B)	$63,000.
			C)	$288,000.
			D)	$378,000.
2			Fair value is used as the basis for valuation of a firm's investment securities when:
			A)	Management's intention is to dispose of the securities within one year.
			B)	The market value is less than cost for each equity security in the portfolio.
			C)	The investment security is not classified as held-to-maturity.
			D)	The investment security is classified as held-to-maturity.
3			Unrecognized holding gains and losses are included in an investor's earnings for:
			A)	Trading Securities: Yes; Securities Available-For-Sale: No
			B)	Trading Securities: Yes; Securities Available-For-Sale: Yes
			C)	Trading Securities: No; Securities Available-For-Sale: Yes
			D)	Trading Securities: No; Securities Available-For-Sale: No
4			Investment securities are reported on a balance sheet at fair value for:
			A)	Trading Securities: Yes; Securities Available-For-Sale: No
			B)	Trading Securities: Yes; Securities Available-For-Sale: Yes
			C)	Trading Securities: No; Securities Available-For-Sale: Yes
			D)	Trading Securities: No; Securities Available-For-Sale: No
5			Which of the following statements is untrue regarding investments in equity securities?
			A)	If the investor owns less than 20 percent of outstanding voting common stock, the equity method usually is not used.
			B)	If the investor owns more than 50 percent of the outstanding voting common stock, the financial statements are consolidated
			C)	If the investor owns 20-50 percent of the outstanding voting common stock, the equity method always is required.
			D)	If the investor owns less than 20 percent of outstanding voting common stock, the securities generally are reported at their fair value.
6			Unrecognized holding gains and losses for securities to be held-to-maturity are:
			A)	Reported as a separate component of the shareholders' equity section of the balance sheet.
			B)	Included in the determination of income from operations in the period of the change.
			C)	Reported as extraordinary items.
			D)	Not reported in the income statement nor the balance sheet.
7			Unrecognized holding gains and losses for securities available-for-sale are:
			A)	Reported as a separate component of the shareholders' equity section of the balance sheet.
			B)	Included in the determination of income from operations in the period of the change.
			C)	Reported as extraordinary items.
			D)	Not reported in the income statement nor the balance sheet.
8			Unrecognized holding gains and losses for trading securities are:
			A)	Reported as a separate component of the shareholders' equity section of the balance sheet.
			B)	Included in the determination of income from operations in the period of the change.
			C)	Reported as extraordinary items.
			D)	Not reported in the income statement nor the balance sheet.
9			On January 12, Henderson Corporation purchased 4 million shares of Honeycutt Corporation common stock for $73 million and classified the securities as available-for-sale. At the close of the same year, the fair value of the securities is $81 million. Henderson Corporation should report:
			A)	A gain of $8 million on the income statement.
			B)	An increase in shareholders' equity of $8 million.
			C)	An investment of $73 million.
			D)	None of the above.
10			Evans Company owns 4.5 million shares of stock of Frazier Company classified as available-for-sale. During 2006, the fair value of those shares increased by $9 million. What effect did this increase have on Evans' 2006 financial statements?
			A)	Net assets increased.
			B)	Total assets decreased.
			C)	Net income increased.
			D)	Shareholders' equity decreased.
11			Level Company owns bonds of Leader Company classified as held-to-maturity. During 2006, the fair value of those bonds increased by $4 million. Interest was received of $3 million. What effect did the investment have on Level's 2006 financial statements?
			A)	Total assets increased by $7 million.
			B)	Total assets increased by $3 million.
			C)	Net income increased by $7 million.
			D)	Shareholders' equity increased by $4 million.
12			If the investment described in the previous question had been classified as available-for-sale, what effect would the investment have on Level's 2006 financial statements?
			A)	Total assets increased by $7 million.
			B)	Total assets increased by $3 million.
			C)	Net income increased by $7 million.
			D)	Shareholders' equity increased by $1 million.
13			On January 2, 2006, Garner, Inc. bought 10% of the outstanding common stock of Moody, Inc. for $60 million cash. At the date of acquisition of the stock, Moody's net assets had a book value and fair value of $180 million. Moody's net income for the year ended December 31, 2006, was $30 million. During 2006, Moody declared and paid cash dividends of $6 million. On December 31, 2006, Garner's investment should be reported at:
			A)	$60.0 million.
			B)	$66.9 million.
			C)	$69.0 million.
			D)	$71.1 million.
14			On January 2, 2006, Garner, Inc. bought 30% of the outstanding common stock of Moody, Inc. for $60 million cash. At the date of acquisition of the stock, Moody's net assets had a book value and fair value of $180 million. Moody's net income for the year ended December 31, 2006, was $30 million. During 2006, Moody declared and paid cash dividends of $6 million. On December 31, 2006, Garner's investment account should be reported at:
			A)	$60.0 million.
			B)	$67.2 million.
			C)	$69.0 million.
			D)	$71.1 million.
15			The equity method is used when an investor can't control, but can exercise significant influence over the operating and financial policies of the investee. We presume, in the absence of evidence to the contrary, that this is so if:
			A)	The investor classifies the investment as available-for-sale.
			B)	The investor classifies the investment as held-to-maturity.
			C)	The investor owns between 51% or more of the investee's voting shares.
			D)	The investor owns between 20% and 50% of the investee's voting shares.
16			On January 2, 2006, Germane, Inc. bought 30% of the outstanding common stock of Quality, Inc. for $56 million cash. At the date of acquisition of the stock, Quality's net assets had a book value and fair value of $120 million. Quality's net income for the year ended December 31, 2006, was $30 million. During 2006, Quality declared and paid cash dividends of $10 million. On December 31, 2006, Germane's should report investment revenue of:
			A)	$3 million.
			B)	$6 million.
			C)	$9 million.
			D)	$30 million.
17			When applying the equity method, an investor should report dividends from the investee as:
			A)	Dividend revenue.
			B)	An extraordinary item.
			C)	A reduction in the investment account.
			D)	An increase in the investment account.
18			Western Manufacturing Company owns 40% of the outstanding common stock of Eastern Supply Company. During 2006, Western received a $50 million cash dividend from Eastern. What effect did this dividend have on Western's 2006 financial statements?
			A)	Total assets increased.
			B)	Total assets decreased.
			C)	Net income increased.
			D)	The investment account decreased.