Dither Co Owns 100% of the Common Shares of Franklin Ltd

question 51

Multiple Choice

Dither Co. owns 100% of the common shares of Franklin Ltd. Dither records its investment in Franklin using the cost method. Dither and Franklin have transactions with each other. In preparing Dither's consolidated financial statements, which of the following should be done?

• A)Dividends received by Dither from Franklin should be deducted from Dither's dividend income.
• B)Franklin's retained earnings should be deducted from Dither's retained earnings.
• C)Dither's receivable from Franklin should be netted with Dither's accounts receivable.
• D)Franklin's share capital should be added to Dither's share capital.

---

Definitions:

Predetermined Manufacturing Overhead

An estimated overhead cost calculated before the actual production starts, used in budgeting and setting product prices.

Markup

Markup is the amount added to the cost price of goods to cover overhead and profit, determining the selling price.

Overhead Applied

The portion of estimated overhead cost allocated to each unit of production or activity based on the predetermined overhead rate.

Manufacturing Overhead

Factory-associated indirect expenses that arise during the manufacturing of a product.