Rock Company Acquired 10% of the Voting Stock of Hudson

question 97

Multiple Choice

Rock Company acquired 10% of the voting stock of Hudson Company for $10 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 $11 million. What accounts would be affected on Rock Company's books to reflect the year- end market value and by how much?

• A) Cash would increase by $11 million and Stockholders' Equity would increase by $11 million.
• B) There is no entry and no effect.
• C) Investments would increase by $1 million and Stockholders' Equity would increase by $1 million.
• D) Investments would increase by $11 million and Stockholders' Equity would increase by $11 million.

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