Waite Co Is a Wholly-Earned Subsidiary of Star Ltd B)

question 37

Multiple Choice

Waite Co. is a wholly-earned subsidiary of Star Ltd. During the year, Waite earned net income of $65,000. Star recorded this income on its books using the equity method. What elimination entry does Star have to make in the consolidation process with respect to this income?

• A) \[\begin{array} { | c | c | }
• \hline \text { DR Equity earnings in Waite } & 65,000 \\
• \hline \text { CR Retained earnings } & 65,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | c | c | }
• \hline \text { DR Equity earnings in Waite } & 65,000 \\
• \hline \text { CR Investment in Waite } & 65,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | c | }
• \hline \text { DR Investment in Waite } & 65,000 \\
• \hline \text { CR Equity earnings in Waite } & 65,000 \\
• \hline
• \end{array}\]
• D)No entry is required under the equity method.

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Definitions:

Cost of Merchandise Sold

The total expense incurred by a company to buy or manufacture the goods sold during a period.

Gross Profit

The difference between revenue from sales and the cost of goods sold, before deducting overhead, payroll, taxation, and interest payments.

Sales

The transactions involving the exchange of goods or services for money, reflecting the primary revenue source for most businesses.

Operating Income

Earnings from a company's main business activities, excluding expenses like interest and taxes.