On January 1, 2013, Tonya Ltd $\begin{array} { | l | l | } \hline \text { Investment in Chen } & \text { Investment Income } \\\hline \$ 600,000 & \$ 34,000 \\\hline\end{array}$

question 36

Multiple Choice

On January 1, 2013, Tonya Ltd. started Chen Ltd. by contributing $600,000 and received 100% of the common shares of Chen. Chen reported net income of $40,000 in 2013 and $85,000 in 2014 and paid out 40% of its net income as dividends in each year. Under the equity method, which of the following amounts should be reported on Tonya's separate-entity 2014 financial statements?

• A)
• \(\begin{array} { | l | l | }
• \hline \text { Investment in Chen } & \text { Investment Income } \\
• \hline \$ 600,000 & \$ 34,000 \\
• \hline
• \end{array}\)
• B)
• \(\begin{array} { | l | l | }
• \hline \text { Investment in Chen } & \text { Investment Income } \\
• \hline \$ 675,000 & \$ 85,000 \\
• \hline
• \end{array}\)
• C)
• \(\begin{array} { | l | l | }
• \hline \text { Investment in Chen } & \text { Investment Income } \\
• \hline \$ 625,000 & \$ 34,000 \\
• \hline
• \end{array}\)
• D)
• \(\begin{array} { | l | l | }
• \hline \text { Investment in Chen } & \text { Investment Income } \\
• \hline \$ 625,000 & \$ 40,000 \\
• \hline
• \end{array}\)

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Definitions:

Residual Value

The anticipated salvage value an asset will have after its period of use has ended.

Depreciation Expense

Spreading out the expense of a solid asset over the period it's expected to be used.

Units-Of-Production Method

An accounting method of depreciation that allocates cost based on the actual usage or production levels of the asset.

Depreciation Expense

An accounting method used to allocate the cost of a tangible asset over its useful life.