Heartfelt Company Owns a 40% Interest in the Voting Common

question 56

Multiple Choice

Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation, and Heartfelt accounts for the investment using the equity method. During 2016, Candle Corporation reported net income of $100,000 and declared and paid cash dividends of $10,000. The carrying value of the Candle investment was $500,000 on January 1, 2016. At what amount is the Candle investment reported on the December 31, 2016 balance sheet of Heartfelt Company?

• A)$496,000.
• B)$500,000.
• C)$536,000.
• D)$540,000.

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Definitions:

Explicit Costs

Expenses directly incurred in the course of running a business, such as wages and materials.

Economic Costs

The total value of all resources used in the production of a good or service, including both explicit and implicit costs.

Normal Rate

A term often used to refer to the standard or commonly accepted rate for a financial or economic measurement, but can vary by context.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision or investment.