Use the Information Below to Answer the Following Questions

question 14

Multiple Choice

Use the information below to answer the following questions:
On 1 January 2012, Sky-High Ltd acquired 100 000 shares (30% of the voting interest) in Down Ltd for $600 000 cash. On 30 June 2012, Down Ltd announced its earnings per share for the first 6 months of 2012 at $1.50 per share. On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share. On 31 December 2012, Down Ltd announced its earnings per share for 2012 at $2.80 per share (i.e., $1.30 additional since 30 June) .
-If Sky-High Ltd used the cost basis,which of the following accounting records would it make on 30 June 2012 in response to Down Ltd's earnings announcement?

• A) It would increase dividend revenue by $150 000.
• B) It would increase investment in Down Ltd by $150 000.
• C) It would decrease investment in Down Ltd by $150 000.
• D) No record would have been made.

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Definitions:

FOB Shipping Point

A term used in shipping agreements indicating that the buyer is responsible for the goods and the cost of shipping as soon as the goods leave the seller's premises.

Goods In Transit

Items being transported from one location to another, which have not yet reached the recipient or destination point.

Purchaser's Inventory

Goods and materials that a business holds for the ultimate goal of resale.

LIFO Conformity Rule

A tax regulation requiring companies that use the Last In, First Out (LIFO) method for tax reporting to also use it for financial reporting.