At the Beginning of 2013, Ridley Ltd

question 54

Multiple Choice

At the beginning of 2013, Ridley Ltd. acquired 25% of the voting shares of Gasser Co. for $150,000. Ridley has significant influence over Gasser. In 2013, Gasser earned net income of $70,000 and paid dividends of $40,000. In 2014, Gasser earned net income of $80,000 and paid dividends of $100,000. At the end of 2014, what is the balance of Ridley's "Investment in Gasser" account?

• A)$150,000
• B)$147,500
• C)$152,500
• D)$222,500

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Definitions:

WACC

Weighted Average Cost of Capital, a calculation that reflects the cost of a company to finance its assets through a mix of equity and debt.

Level of Risk

The level of risk and possible monetary loss associated with making an investment choice.

Weighted Average Cost

A measure that calculates the average cost of goods available for sale, considering the weight of each unit's cost.

Cost of Equity

The rate of return that a company is expected to pay out to its shareholders for their investment in the company, factoring in the risk of the investment.