On January 1, 20X1, Best Décor Ltd B) C) D)

question 2

Multiple Choice

On January 1, 20X1, Best Décor Ltd. started Chic Styles Ltd. by contributing $500,000 and received 100% of the common shares of Chic Styles. Chic Styles reported net income of $50,000 in 20X1 and $75,000 in 20X2 and paid out 40% of its net income as dividends in each year. Under the equity method, what amount should be reported as Investment in Chic Styles and Investment Income on Best Décor's separate-entity 20X2 financial statements?

• A) \[\begin{array} { | l | l | }
• \hline \text { Investment in Chic Styles } & \text { Investment Income } \\
• \hline \$500,000 & \$ 30,000 \\
• \hline
• \end{array}\]
• B)
• \[\begin{array} { | l | l | }
• \hline \text { Investment in Chic Styles } & \text { Investment Income } \\
• \hline \$ 575,000 & \$ 75,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | l | }
• \hline \text { Investment in Chic Styles } & \text { Investment Income } \\
• \hline 625,000 & \$ 30,000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | l | }
• \hline \text { Investment in Chic Styles } & \text { Investment Income } \\
• \hline \$ 625,000 & \$ 75,000 \\
• \hline
• \end{array}\]

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