Company P Uses the Sophisticated Equity Method of Accounting for Its

question 24

Multiple Choice

Company P uses the sophisticated equity method of accounting for its 30% investment in Company S's common stock.During 20X9, Company S reported net earnings of $650,000 and paid dividends of $150,000.Assume that all the undistributed earnings of Company S will be distributed as dividends in future periods.The dividends received from Company S are eligible for the 80% dividends received deduction.Company P's 20X9, tax rate is 30%.In its December 31, 20X9, balance sheet, the increase in the deferred tax liability from these transactions would be ____.

• A)​$7,500
• B)​$9,000
• C)​$150,000
• D)​$30,000

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Definitions:

Notes Payable

A written agreement to pay a specific amount to a lender at a future date, typically including interest payments, classified as a liability on the balance sheet.

Ending Equity

The total value of all ownership interests in the company at the end of the accounting period, after all revenues and expenses are accounted for.

Beginning Equity

The value of an owner's interest in a company at the start of an accounting period.

Revenues

The total amount of money generated by a company from its business activities, such as sales of goods or services, before any expenses are subtracted.