What Method Should RBB Use to Account for Their Investment

question 60

Multiple Choice

What method should RBB use to account for their investment in Torritos Tacos Emporium?

• A) Consolidation method
• B) Fair value method
• C) Cost method
• D) Equity method

Recognize how cash dividends received are accounted for under the equity method.

Comprehend the accounting for long-term investments using the cost method.

Distinguish between available-for-sale, held-to-maturity, and trading securities and their impact on net income.

Calculate the correct amount to be shown in the investment account based on dividends received and percentage of ownership.

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Definitions:

Investing Assets

Assets acquired for the purpose of generating income through appreciation, dividends, rents, or interest earnings.

Existing Partnership

A business entity owned by two or more people that has not been dissolved or restructured, continuing its operations as initially agreed.

Capital Balances

The amounts of money or value of other assets owned by a company or individual, often reflective of equity or investment in business.

Income Ratios

Metrics used to evaluate a company's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period.