At the Beginning of 20X1, Rally Ltd B) C) D)No Entry Is Required

question 36

Multiple Choice

At the beginning of 20X1, Rally Ltd. acquired 18% of Neily Co. for $90,000. Rally has significant influence over Neily. Rally records the investment in Neily using the cost method. Rally's share of Neily's income was $29,000 for 20X1 and $33,000 for 20X2. Rally received dividends from Neily of $25,000 in 20X1 and $35,000 in 20X2. For reporting purposes in 20X2, what adjustment must be made to recognize Rally's share of Neily's 20X2 income?

• A) \[\begin{array} { | c | c | }
• \hline \text { DR Income receivable from Neily } & 33,000 \\
• \hline \text { CR Equity in earnings of Neily } & 33,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | c | c | }
• \hline \text { DR Income receivable from Neily } & 33,000 \\
• \hline \text { CR Investment in Neily } & 33,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | c | }
• \hline \text { DR Investment in Neily } & 33,000 \\
• \hline \text { CR Equity in earnings of Neily } & 33,000 \\
• \hline
• \end{array}\]
• D)No entry is required

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Definitions:

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors.

Offshoring

The practice of relocating business processes or production to another country, often to reduce costs or take advantage of favorable economic conditions.

Production Activities

The processes and operations involved in the creation of goods and services, encompassing everything from resource gathering to the final output.

Foreign Locations

Foreign locations refer to places outside a company's home country where it conducts business activities, including offices, factories, or stores.