On January 3, Kostansas Corporation purchased 5,000 shares of Morton, Inc. for $40 per share. These shares represent a 40% ownership in Morton, Inc. Prepare the journal entry Kostansas Corporation should record when Morton reports net income of $52,000 for the year on December 31.
What will be an ideal response?
| Dec. 31 Equity Method Investments | 20,800 |
| Earnings from Equity Method Investments | 20,800 |
Kostansas share of the $52,000 net income is 40%.
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Surplus Mining Company has leased a machine from Craft Machinery Company. The annual payments are $6,000 and the life of the lease is 8 years. It is estimated that the useful life of the machine is 9 years. How would Surplus Mining record the acquisition of the machine?
a. The machine would be recorded as an asset with a cost of $48,000. b. The company would not record the machine as an asset but would record rent expense of $6,000 per year. c. The machine would be recorded as an asset, at the present value of the annual cash payments, $6,000 for 8 years. d. The machine would be recorded as an asset, at the present value of the annual cash payments, $6,000 for 9 years.
A company issues a 60-day, 13% note for $16,000. What is the principal amount of the note? (Round your answer to the nearest dollar.)
A) $18,080 B) $16,000 C) $15,653 D) $16,347
Elmer wrote a letter to his friend, Fred, offering to sell him an 80-acre farm for $200,000 . After mailing the letter, Elmer learns that the farm is actually worth $300,000 and changes his mind about selling. Which of the following is true?
a. Elmer must keep the offer open, because this is an option contract. b. Elmer is stopped from revoking his offer to Fred. c. Elmer has made a firm offer to Fred which cannot be revoked. d. Elmer can revoke his offer at anytime, because there is no consideration to keep it open.
The risk-free rate is equal to the real rate of return plus
A) an expected inflation premium. B) a risk premium. C) both an inflation and a risk premium. D) the prevailing prime rate.