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.

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Definitions:

Tangible Capital

Physical assets owned by a firm that are used in the production process, such as buildings and machinery.

Goodwill

An intangible asset that represents the value of a company's brand name, customer relationships, employee relations, and other non-physical assets.

Human Capital

The stock of habits, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.

Critical Thinking

Critical Thinking is the analytical process of objectively evaluating information to make reasoned judgments and solve problems.