The following information relates to Part A questions 2 to 4 Cactus Ltd applies the equity method
Question:
The following information relates to Part A questions 2 to 4 Cactus Ltd applies the equity method to its associate Daffodil Ltd. On 1 July 2022, Cactus Ltd acquired a 40% ownership interest in Daffodil Ltd for cash consideration of $50 000. The acquisition analysis shows recorded equities of $125 000 and no fair value adjustments or goodwill. Daffodil Ltd recorded a profit after tax of $15 000 for the year to 30 June 2023 and declared and paid a dividend of $10 000.
QUESTION 4 - Continued
2. The general journal or consolidation worksheet entry to record the financial performance of Cactus Ltd's investment in Daffodil Ltd for the year to 30 June 2023 is?
A) DR. Share of Associate net profit after tax 6,000 CR. Investment in Daffodil Ltd 6,000
B) DR. Investment in Daffodil Ltd 6,000 CR. Share of Associate net profit after tax 6,000
C) DR. Investment in Daffodil Ltd 20,000 CR. Share of Associate net profit after tax 20,000
D) DR. Investment in Daffodil Ltd 50,000 CR. Share of Associate net profit after tax 50,000
3. If Cactus Ltd applies the equity method to associates in its own accounting records then the dividend received from Daffodil Ltd is recorded as follows. A) DR. Dividend Revenue 4,000 CR. Investment in Daffodil Ltd 4,000 B) DR. Cash 4,000 CR. Dividend Revenue 4,000 C) DR. Cash 4,000 CR. Investment in Daffodil Ltd 4,000 D) No entry is required
4. If Cactus Ltd applies the equity method to associates when preparing consolidated financial statements, then the worksheet entry for the dividend from Daffodil Ltd is as follows. A) DR. Dividend Revenue 4,000 CR. Investment in Daffodil Ltd 4,000 B) DR. Cash 4,000 CR. Dividend Revenue 4,000 C) DR. Cash 4,000 CR. Investment in Daffodil Ltd 4,000 D) DR. Investment in Daffodil Ltd 4,000 CR Dividend Revenue 4,000
Intermediate Accounting
ISBN: 978-1119048534
11th Canadian edition Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy