Assume That Company P Purchases a 10% Common Stock Interest

question 2

Multiple Choice

Assume that Company P purchases a 10% common stock interest in Company S for $12,000 on January 1, 20X2, and an additional 20% interest on January 1, 20X3, for $26,000. There was no excess of cost or book value on either investment. The balance sheets of Company, S which pays no dividends, follow: For 20X3, Company P reports investment income of ____.

• A)$18,000
• B)$12,000
• C)$9,000
• D)$6,000

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Definitions:

Credit

The provision of resources (like money) by one party to another, where the second party agrees to repay the first party at a later date, usually with interest.

Liable

Legally responsible or obligated, often in the context of paying compensation for harm or damage.

Damaged

Refers to items or property that have been harmed or adversely affected, usually reducing their value or functionality.

Merchant

An individual or business involved in the wholesale purchase or retail sale of goods for profit.