On January 1^st, 2011, ABC Inc -Assuming That ABC Adheres to ASPE and Opts to Use

question 42

Multiple Choice

On January 1^st, 2011, ABC Inc. purchased 30% of the outstanding voting shares of DEF Inc, a company whose operations rely heavily on ABC's managerial involvement, for $600,000. On that date, DEF's net assets had a fair value equivalent to their book values.
During 2011 and 2012, DEF Inc. earned income and paid dividends as follows:
$\begin{array}{|l|l|l|}\hline & \text { Income } & \text { Dividends } \\\hline 2011 & \$ 120,000& \$ 20,000 \\\hline 2012 & \$ 180,000& \$ 30,000 \\\hline\end{array}$

-Assuming that ABC adheres to ASPE and opts to use the cost method, what effect (if any) would there be as on ABC's 2012 income as a result of this investment?

• A) No effect.
• B) $6,000 of dividend income.
• C) $6,000 of investment income.
• D) $9,000 of dividend income.
• E) $30,000 of investment income.

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Definitions:

Differentiation Positioning

A marketing strategy where a company seeks to distinguish its products or services from competitors through unique features, benefits, or attributes.

Distribution Strategies

Plans and tactics used by a company to deliver their products or services to the consumer or business user.

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