Rocky Company Acquired 40% of the Voting Stock of Boulder

question 91

Multiple Choice

Rocky Company acquired 40% of the voting stock of Boulder Company for $40 million.At the end of Year 1,Boulder Company reports net income of $15 million and pays cash dividends of $5 million.At the end of Year 1,the market value of Rocky Company's investment in Boulder Company is $44 million.What accounts on Rocky Company's books would be affected by the net income of Boulder Company?

• A)none
• B)Investments increase $15 million and Stockholders' equity increases $15 million
• C)Cash increases $15 million and Stockholders' equity increases $15 million
• D)Investments increase $6 million and Stockholders' equity increases $6 million

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Definitions:

Ontology

The study of being: “What is most real?”; “What is it for a thing to exist?”

Evaluative

Involving value judgments, as opposed to simply being descriptive.

Basic

Constituting an essential foundation or starting point; fundamental characteristics or principles of something.

Pythagoras

An ancient Greek philosopher and mathematician who is credited with significant developments in mathematics, astronomy, and the theory of music.