Use the Information Below to Answer the Following Questions

question 4

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 equity basis,which of the following accounting records would it make on 31 December 2012 in response to Down Ltd's earnings announcement?

• A) It would increase investment in Down Ltd by $130 000.
• B) It would increase cash by $130 000.
• C) It would increase dividend revenue by $130 000.
• D) It would increase investment in Down Ltd by $130 000 and increased dividend revenue by $130 000.

---

Definitions:

Fair-Value Method

An accounting approach where assets and liabilities are listed at their fair value, reflecting their current market price.

Majority-Owned Investment

An investment in which the parent company owns more than 50% of the subsidiary's voting stock.

Initial Value Method

An accounting method that records assets and investments at their original cost without adjusting for increases or decreases in market value.

Partial Equity Method

A method of accounting for an investment where the investor recognizes income to the extent of dividends received and any changes in the investee's equity.