DEF Company Acquired in 2012 a 100% Interest in MNO

question 8

Multiple Choice

DEF Company acquired in 2012 a 100% interest in MNO Company by acquiring shares that cost $50,000. In 2012, MNO Company reported income of $10,000 and $8,000 in 2013. MNO Company also paid dividends to DEF Company of $2,000 in 2012 and $ 8,000 in 2013. The balance of DEF Company's investment in MNO Company in its own books if it reflects the investment at cost at December 31, 2012 was:

• A)$ 22,000
• B)$ 42,000
• C)$ 50,000
• D)$ 78,000

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Definitions:

Profit Margins

A financial metric that assesses the percentage of profit made from sales after all expenses have been deducted.

Return on Investment

A measure of the profitability of an investment, calculated by dividing the net gains from the investment by its cost.

Investment Turnover

A ratio measuring how efficiently a company generates sales from its inventory investments.

Profit Margin

A financial metric expressing the percentage of revenue that remains as profit after all operating expenses are deducted.