Phast Corporation Owns a 80% Interest in Stechno Company,acquired Several

question 3

Multiple Choice

Phast Corporation owns a 80% interest in Stechno Company,acquired several years ago at a cost equal to book value and fair value.Stechno sells merchandise to Phast for the first time in 2014,and some is unsold at December 31,2014.In computing income from the investee for 2014 under the equity method,Phast uses which equation?

• A)80% of Stechno's income less 100% of the unrealized profit in Phast's ending inventory
• B)80% of Stechno's income plus 100% of the unrealized profit in Phast's ending inventory
• C)80% of Stechno's income less 80% of the unrealized profit in Phast's ending inventory
• D)80% of Stechno's income plus 80% of the unrealized profit in Phast's ending inventory

---

Definitions:

Liability Account

An accounting record of amounts owed to creditors, representing claims against the company’s assets.

Voucher System

A control process in accounting where vouchers are used to authorize and record transactions before payments are made.

Internal Control

Processes and procedures implemented by a company to safeguard assets, enhance the reliability of financial reports, and ensure compliance with laws and regulations.

Information

Data that is processed, organized, structured, or presented in a given context to make it meaningful and useful.