Baker Ltd Acquired 22% of and Significant Influence Over the Operations

question 34

Multiple Choice

Baker Ltd acquired 22% of and significant influence over the operations of Street Ltd on 1 July 20X0.During the financial year ended 30 June 20X1, Street Ltd earned a profit of $140 000.Baker Ltd does not control any entities.What is the journal entry to record the share of Street Ltd's result in the accounts of Baker Ltd for the year ended 30 June 20X1 using the equity method?

• A)\(\begin{array} { l r r }
• \text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\
• \text { Investment in Street Ltd } & 30800 & \\
• \text { Dividend revenue } & & 30800
• \end{array}\)
• B)\(\begin{array} { l r r }
• \text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\
• \text { Investment in Street Ltd } & 30800 & \\
• \text { Share of associate's profit or loss } & & 30800
• \end{array}\)
• C)\(\begin{array} { l c c }
• \text { Accounts } & \text { Debit } \$ & \text { Credit \$ } \\
• \text { Investment in Street Ltd } & 140000 & \\
• \text { Dividend revenue } & & 140000
• \end{array}\)
• D)No journal entry because Baker Ltd must use the cost method

---

Definitions:

After-tax Real Rate

The after-tax real rate is the interest rate that remains after adjusting for both taxes and inflation, showing the real earning power of money over time.

Real Interest Rate

The effective interest rate once inflation is considered, showcasing the authentic expense of borrowing and the legitimate earnings for investors.

Marginal Tax Rate

The rate at which the next dollar of taxable income is taxed, indicating the tax impact on an additional unit of income.

Relative-price Variability

The fluctuation and differences in price levels of goods and services relative to each other over time.