P Company Purchased 80% of the Outstanding Common Stock of S

question 10

Multiple Choice

P Company purchased 80% of the outstanding common stock of S Company on May 1, 2017, for a cash payment of $318,000. During the calendar year 2017, S Company earned $210,000 evenly throughout the year and declared a dividend of $75,000 on November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated workpaper on December 31, 2017?

• A) $52,000
• B) $65,000
• C) $62,000
• D) $108,000

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Definitions:

Credit Sales

Transactions where the buyer is allowed to pay for goods or services at a later date, rather than at the time of purchase.

Interest Rate

A cost, depicted as a percent of the original amount, that a lender demands from a borrower for the right to use resources.

Stated Rate

The interest rate declared on a financial instrument, such as a bond or a loan, which is fixed and does not change over the life of the instrument.

Term

In finance, it refers to the period of time until a loan matures; in a broader sense, it can describe any specific duration or the definition of a concept or agreement.