Rock Company Acquired 40% of the Voting Stock of Hudson

question 160

Multiple Choice

Rock Company acquired 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. The should be used to account for the investment.

• A) cost method
• B) market method
• C) consolidated method
• D) equity method

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Definitions:

Commission

Payment to an employee or to an agent for performing or helping to perform a business transaction or service.

Accrued Interest

The amount of interest that has accumulated on a loan or bond over a specific period but has not yet been paid.

Semiannually

Occurring twice a year; every six months.

Accrued Interest

The interest that has accumulated on a financial obligation over a period of time but has not yet been paid.