Suppose Rock Company Acquires 40% of the Voting Stock of Hudson

question 76

Multiple Choice

Suppose Rock Company acquires 40% of the voting stock of Hudson Company for $40 million.In year 1, Hudson Company reports net income of $15 million and pays cash dividends of $5 million.At the end of the year the market value of Rock Company's investment in Hudson Company is $44 million.What accounts would be affected on Rock Company's books to reflect the year-end market value and by how much?

• A)There is no entry and no effect.
• B)Cash would increase by $44 million and Stockholders' Equity would increase by $44 million.
• C)Investments would increase by $44 million and Stockholders' Equity would increase by $44 million.
• D)Investments would increase by $4 million and Stockholders' Equity would increase by $4 million.

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