In equity accounting the investment in Rimfire Ltd in the year ended June 30 20X7,the adjustment to recognise the equity of Delta Ltd in Rimfire Ltd at June 30 20X6 would be:

Question

Quizplus · Accepted Answer

The adjustment to recognize the equity of Delta Ltd in Rimfire Ltd at June 30, 20X6 would require adding the difference between Delta Ltd's share of Rimfire Ltd's net assets at June 30, 20X6, and the cost of the investment. Based on the information provided, Delta Ltd's share of Rimfire Ltd's net assets at June 30, 20X6 is $16,000 (40% x $40,000), and the cost of the investment is $300,000. Therefore, the adjustment would be a debit to Investment in Associate for $316,000 ($300,000 + $16,000) and a credit to Retained Earnings for the same amount. Choice A is incorrect because it does not include the additional $16,000 adjustment. Choice C is incorrect because it overstates the adjustment by including the entire value of Delta Ltd's share of Rimfire Ltd's net assets at June 30, 20X6, rather than just the difference between that value and the cost of the investment. Choice D is incorrect because one of the other choices must be correct based on the information provided.

In Equity Accounting the Investment in Rimfire Ltd in the Year