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

question 16

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 equity basis, which of the following accounting records would it make on 31 December 2019 in response to Down Ltd's earnings announcement?

• A) It would increase investment in Down Ltd by $130 000.
• B) It would increase cash by $130 000.
• C) It would increase dividend revenue by $130 000.
• D) It would increase investment in Down Ltd by $130 000 and increased dividend revenue by $130 000.

---

Definitions:

Express and Implied Warranty

Guarantees that a seller makes about the condition, functionality, or performance of goods or services; express warranty being explicitly stated and implied warranty being presumed by law.

Time Limitation

A statutory period within which a lawsuit must be filed or a specific legal action must be taken; failing to act within this period can result in losing the right to claim.

Restatement (Third)

A collection of volumes intended to inform the judiciary, lawyers, and others about general principles of common law in various areas.

Section 402A

A section of the Restatement (Second) of Torts relating to the liability of sellers for harm caused by defective products.