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.

---

Definitions:

Cash

Currency or its equivalents that a company holds and can use to conduct transactions, considered the most liquid form of asset.

Face Value

The nominal or dollar value printed on a stock, bond, or other financial instrument, representing its value at issuance.

Interest

The cost of using borrowed funds, or the return on invested funds, typically expressed as a percentage rate over a period of time.

Expense

A cost incurred in running a business by consuming goods or services in producing revenue. A subdivision of owner’s equity.