On 1 January 2019, Sky-High Ltd Acquired 100 000 Shares

question 7

Multiple Choice

On 1 January 2019, Sky-High Ltd acquired 100 000 shares (30 per cent of the voting interest) in Down Ltd for $600 000 cash. On 30 June 2019, Down Ltd announced its earnings per share for the first six months of 2019 at $1.50 per share. On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share. On 31 December 2019, Down Ltd announced its earnings per share for 2019 at $2.80 per share (i.e. $1.30 additional since 30 June) . If Sky-High Ltd used the cost basis, what dividend revenue did it record for the year ended 31 December 2019 in respect of its investment in Down Ltd?

• A) Nil
• B) $90 000
• C) $190 000
• D) $280 000

---

Definitions:

Contribution Margin

The difference between the sales revenue of a product and its variable costs, indicating how much contributes to covering fixed costs and generating profit.

Variable Expenses

Costs or expenses that change in proportion to business activity levels or volume, such as sales commissions or raw material costs.

Traceable Fixed Expenses

Fixed costs directly associated with specific business segments, which would be eliminated if the segment was discontinued.

Net Operating Income

The amount of income generated from regular business operations after subtracting operating expenses but before taxes and interest.