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:

Labor Efficiency Variance

The difference between the actual hours worked and the standard hours allowed, multiplied by the standard labor rate, indicating efficiency in labor usage.

Direct Labor Standards

The predetermined amount of labor time and cost that it should ideally take to produce one unit of a product, used for budgeting and performance evaluation.

Actual Direct Labor Cost

The total expense incurred from the wages and associated benefits of workers directly involved in the manufacturing of a product.

Total Standard Cost

The total budgeted cost for manufacturing a product, based on standard prices and quantities for input.