Evil Ltd Acquired 20% of and Significant Influence Over the Operations

question 32

Multiple Choice

Evil Ltd acquired 20% of and significant influence over the operations of Electric Ltd on 1 July 20X0.At that date the equity of Electric Ltd comprised retained profits of $800 000 and paid up capital of $3 000 000.During the financial year ended 30 June 20X1, Electric Ltd declared and paid a dividend of $200 000 out of profits earned to 30 June 20X0 and declared a final dividend of $300 000 out of profits earned in the year ended 30 June 20X1.Evil Ltd does not control any entities.What is the journal entry to record these dividends for Evil Ltd for the year ended 30 June 20X1 using the equity method?

• A)\(\begin{array} { l r c }
• \text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\
• \text { Dividend receivable } & 200000 & \\
• \text { Dividend revenue } & & 200000 \\
• \begin{array} { l }
• \text { Bank } \\
• \text { Investment in Electric }
• \end{array} & 300000 & \\
• & & 300000
• \end{array}\)
• B)\(\begin{array} { l c c }
• \text { Accounts } & \text { Debit } \$ & \text { Credit \$ } \\
• \text { Dividend receivable } & 200000 & \\
• \text { Bank } & 300000 & \\
• \text { Dividend revenue } & & 500000
• \end{array}\)
• C)\(\begin{array} { l r r }
• \text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\
• \text { Dividend receivable } & 60000 & \\
• \text { Bank } & 40000 & \\
• \text { Investment in Electric } & & 100000
• \end{array}\)
• D)\(\begin{array} { l r r }
• \text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\
• \text { Dividend receivable } & 40000 & \\
• \text { Bank } & 60000 & \\
• \text { Dividend revenue } & & 100000
• \end{array}\)

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Definitions:

Isoquant Map

An isoquant map is a graph showing combinations of inputs that yield the same level of output, used in economics to depict production efficiencies and substitutability between inputs.

Printing Presses

Machines used for transferring text and images onto paper or similar materials, pivotal in the history of publishing and information dissemination.

Marginal Rate

A term that often refers to the marginal rate of substitution in economics, which measures the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility.

Technical Substitution

The process of replacing one set of input variables or resources with another set, in production processes, to achieve a similar level of output. This reflects the firm’s ability to adapt to changes in resource availability or cost.