If Barton Company Purchases a Minority Active Interest in Laramie

question 1

Multiple Choice

If Barton Company purchases a minority active interest in Laramie Company for $150,000, Barton will make which of the following entries to record the purchase using the equity method?

• A)Equity in Laramie Company 150,000 Cash 150,000
• B)Investment in Laramie Company 150,000 Cash 150,000
• C)Deferred Revenue--Laramie Company 150,000 Cash 150,000
• D)Common Stock--Laramie Company 150,000 Cash 150,000
• E)Paid-in-Capital--Laramie Company 150,000 Cash 150,000

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Definitions:

Shareholders Equity

The residual interest in the assets of a corporation after deducting its liabilities, representing the amount that would be returned to shareholders if all assets were liquidated and all debts repaid.

Closing Rate

The exchange rate used to convert foreign currency-denominated financial statements of a subsidiary into the reporting currency of the parent company at the balance sheet date.

Foreign Subsidiary

A company that is completely or partially owned and controlled by another company, but operates in a different country than the parent company.

Functional Currency

The currency of the primary economic environment in which an entity operates, usually reflected in its financial statements.