Use the information below to answer the following questions:
On 1 January 2012, Yu Ltd acquired 100 000 shares (30% of the voting interest) in Ping Ltd for $900 000 cash. On 30 June 2012, Ping Ltd announced its earnings per share for the first 6 months of 2012 at $2.00 per share. On 20 November, Ping Ltd paid dividends to shareholders at $1.20 per share. On 31 December 2012, Ping Ltd announced its earnings per share for 2008 at $3.50 per share (i.e., $1.50 additional since 30 June).
-If Yu Ltd used the cost method,what would have been the impact of Ping Ltd's 30 June 2012 earnings announcement?
A) Dividend revenue would have increased by $200 000.
B) Investment in Ping Ltd would have increased by $200 000.
C) Investment in Ping Ltd would have decreased by $200 000.
D) No record would have been made.

Question

Quizplus · Accepted Answer

If Yu Ltd used the cost method, there would be no impact on its financial statements with Ping Ltd's 30 June 2012 earnings announcement. This is because the cost method only records the initial investment at cost and any dividends received as dividend revenue. The earnings per share announcement does not affect the value of the investment or the dividend revenue recorded.

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