On 1 January 2019, Sky-High Ltd acquired 100 000 shares (30 per cent of the voting interest) in Down Ltd for $600 000 cash. On 30 June 2019, Down Ltd announced its earnings per share for the first six months of 2019 at $1.50 per share. On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share. On 31 December 2019, Down Ltd announced its earnings per share for 2019 at $2.80 per share (i.e. $1.30 additional since 30 June). If Sky-High Ltd used the cost basis, which of the following accounting records would it make on 30 June 2019 in response to Down Ltd's earnings announcement?

Question

Quizplus · Accepted Answer

Since Sky-High Ltd is using the cost basis, it would not make any adjustment to the investment in Down Ltd in response to the earnings announcement. The cost basis only requires adjustments for dividends received and changes in the initial cost of the investment (e.g. impairment). Therefore, no record would have been made in response to the earnings announcement.

On 1 January 2019, Sky-High Ltd Acquired 100 000 Shares