Heartfelt Company Owns a 40% Interest in the Voting Common

question 6

Multiple Choice

Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation, and Heartfelt accounts for the investment using the equity method. During 2014, Candle Corporation reported net income of $100,000 and declared and paid cash dividends of $10,000. The carrying value of the Candle investment was $500,000 on January 1, 2014. At what amount is the Candle investment reported on the December 31, 2014 balance sheet?

• A) $496,000.
• B) $500,000.
• C)$536,000.
• D)$540,000.

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Definitions:

Perfect Price Discrimination

A market strategy where a seller charges each buyer their maximum willingness to pay, capturing the entire consumer surplus as profit.

Willingness-to-Pay

The maximum amount a consumer is prepared to spend on a good or service.

Natural Monopoly

A market condition where due to high fixed costs or unique resources, a single company can supply a product or service at a lower cost than any potential competitors.

Average Cost

The cost per unit of output, computed by dividing the total cost of production by the number of units produced, often used to assess the efficiency and profitability of production processes.