Pepper Company Owns 40% of the Common Stock and Exercises

question 125

Multiple Choice

Pepper Company owns 40% of the common stock and exercises significant influence over Salt Company.Pepper Company ________.

• A)would increase its investment account when Salt Company declares dividends
• B)would record 40% of the net income of Salt Company as investment income each year
• C)would record dividends received from Salt Company as investment revenue
• D)would file a consolidated financial statement with Salt Company

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Definitions:

Net Income

The earnings a company retains after removing all expenses and taxes from its revenue.

Periodic Inventory Method

An accounting method where inventory value and cost of goods sold are determined at the end of an accounting period.

Beginning Inventory

The price of items up for sale at the onset of a fiscal period.

Owner's Equity

The residual interest in the assets of the entity after deducting liabilities, representing the ownership interest of shareholders in a company.