Question #38

Reading: Reading 8 Intercorporate Investments

PDF File: Reading 8 Intercorporate Investments.pdf

Page: 16

Status: Correct

Correct Answer: A

Part of Context Group: Q38-39 First in Group
Shared Context
- Assuming the equity method of accounting is used, what will be the cash flow received by Birch, due to their investment in TRQ? A) $65,400. B) $227,500. C) $52,500.
Question
If the consolidation method is used, how much of TRQ's net income will Birch recognize in the group income statement?
Answer Choices:
A. $122,500
B. $175,000
C. $700,000
Explanation
Birch would recognize 25% of the net income = $700,000 × 0.25 = $175,000. This would be recognized line by line to include the full $700,000, then 75% would be removed as belonging to the noncontrolling interest.
Actions
Practice Flashcards