At the Beginning of 20X1, Anwar Ltd $$\begin{array} { | c | c | } \hline \text { DR Investment in Cruz } & 12,000 \\\hline \text { CR Investment income } & 12,000 \\\hline\end{array}$$

question 24

Multiple Choice

At the beginning of 20X1, Anwar Ltd. acquired 15% of the voting shares of Cruz Co. for $150,000. Anwar does not have any significant influence over Cruz. Anwar reports the investment using the cost method. In 20X1, Cruz earned net income of $70,000 and paid dividends of $40,000. In 20X2, Cruz earned net income of $80,000 and paid dividends of $100,000. At the end of 20X2, what journal entry should Anwar make to record its share of Cruz's net income?

• A) \[\begin{array} { | c | c | }
• \hline \text { DR Investment in Cruz } & 12,000 \\
• \hline \text { CR Investment income } & 12,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | c | c | }
• \hline \text { DR Investment in Cruz } & 18,000 \\
• \hline \text { CR Investment income } & 18,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | c | }
• \hline \text { DR Investment in Cruz } & 80,000 \\
• \hline \text { CR Investment income } & 80,000 \\
• \hline
• \end{array}\]
• D)No entry is required

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Definitions:

Incremental Project Cash Flows

The additional cash inflows or outflows expected from undertaking a specific project, excluding any cash flows not directly attributable to the project itself.

NPV

Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment, representing the difference between the present value of cash inflows and outflows.

IRR

A metric used in financial analysis to estimate the profitability of potential investments, it represents the annualized effective compounded return rate.

Sunk Costs

Costs that have already been incurred and cannot be recovered, and should not influence future business decisions.