StarTech Company Bought 40% of AML Company on January 2

question 8

Multiple Choice

StarTech Company bought 40% of AML Company on January 2, 2014, for their book value of $400,000.During 2014, AML earned net income of $60,000 and paid dividends of $16,000; there were no transactions between the two companies.What would be the balance in the Investment in AML Company account on StarTech Company's balance sheet on December 31, 2014?

• A)$400,000
• B)$406,400
• C)$417,600
• D)$424,000

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Definitions:

Return on Equity

A measure of financial performance calculated by dividing net income by shareholder's equity, indicating how well a company uses investments to generate earnings growth.

Quality of Income

A measure of how easily a firm's accounting income can be converted into cash, reflecting the company's financial stability.

Price/Earnings Ratio

A financial ratio that measures a company's share price relative to its earnings per share, indicating how much investors are willing to pay per dollar of earnings.