The Canada Corporation Has Been Using the Equity Method for Its

question 82

Short Answer

The Canada Corporation has been using the equity method for its 100-percent owned subsidiary, Trenton Company, which has both assets and liabilities on its balance sheet and both revenues and expenses on its income statement.Trenton has positive cash flow from operations.Canada now consolidates the accounts of the Trenton Company, which it has owned 100 percent since organizing it.Trenton has no investments of its own and regularly declares dividends greater than zero, but less than net income.
Required:
Answer the following questions with one of these: larger, smaller, unchanged, or insufficient (information given to answer question).

a. What would be the effect on net income of Canada Corporation?
b. What would be the effect on revenues, including investment income, of Canada Corporation?
c. What would be the effect on investments of Canada Corporation?
d. What would be the effect on assets of Canada Corporation?
e. What would be the effect on liabilities of Canada Corporation?
f. What would be the effect on the debt/equity ratio (= Liabilities/Total Equities)?

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Definitions:

Efficiency Wages

Wages set above the equilibrium level by employers to increase worker productivity, discourage turnover, and reduce shirking.

Efficiency-Wage Theory

A theory suggesting employers pay above the market equilibrium wage to increase worker productivity.

Economic Theory

The study of how societies use scarce resources to produce valuable commodities and distribute them among different people.

Natural Rate

Refers to the level of unemployment when the labor market is in equilibrium, accounting for frictional and structural unemployment but not cyclical unemployment.