Affiliate Income Inc
I have a few financial questions I need help on….?
1. In regard to the equity method, it is true that:
A. the investor holds more than 50% of the voting stock of the investee company
B. when the affiliate (investee) reports net income, the investor’s net income will also increase
C. when the investor receives cash dividends, the investor’s net income will increase
D. a realized gain on the sale equals the sales proceeds less the acquisition cost of the investment
2. Pablo, Inc. purchased 40% of Sasita, Inc. for $100,000. Sasita, Inc. reported $50,000 of net income and distributed $10,000 of cash dividends to shareholders. As a result of this investment:
A. the net income of Pablo, Inc. increased by $50,000
B. Pablo, Inc. received cash dividends of $10,000
C. Pablo, Inc. will report an unrealized gain of $20,000
D. Pablo, Inc. will report an ending balance of $116,000 in the long-term investment account
1. In regard to the equity method, it is true that:
B. when the affiliate (investee) reports net income, the investor’s net income will also increase
2. Pablo, Inc. purchased 40% of Sasita, Inc. for $100,000. Sasita, Inc. reported $50,000 of net income and distributed $10,000 of cash dividends to shareholders. As a result of this investment:
D. Pablo, Inc. will report an ending balance of $116,000 in the long-term investment account
Investment at cost $100,000
add Share of profits $20,000
less Dividends received ($4,000)
= Ending balance $116,000
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