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 equity method,what would have been the impact of Ping Ltd's 31 December 2012 earnings announcement?
A) Investment in Ping Ltd would have increased by $150 000.
B) Dividend revenue would have increased by $150 000.
C) Investment in Ping Ltd would have increased by $150 000 and dividend revenue would have increased by $150 000.
D) There would be no impact.

Question

Quizplus · Accepted Answer

Under the equity method, Yu Ltd would recognize its share of Ping Ltd's earnings. With a 30% interest, Yu Ltd would recognize 30% of the additional $1.50 earnings per share for 100,000 shares, which equals $150,000.

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