Under the Equity Method, Which of the Following Statements Is

question 44

Multiple Choice

Under the Equity Method, which of the following statements is TRUE?

• A) The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment.
• B) The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
• C) The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
• D) The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary.

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Definitions:

Average Variable Cost

The total variable costs (costs that change with production volume) divided by the number of units produced, representing the variable cost per unit.

Marginal Cost (MC)

Marginal Cost, abbreviated as MC, refers to the increase in total production cost that arises from producing an additional unit of output, emphasizing the concept of optimizing production levels.

Average Total Cost (ATC)

The total cost divided by the quantity of output produced, representing the per-unit cost of production.

Marginal Revenue (MR)

The additional financial gain a firm secures by selling one more unit of its product or service.