Assume That Company P Purchases a 10% Common Stock Interest

question 16

Multiple Choice

Assume that Company P purchases a 10% common stock interest in Company S for $12,000 on January 1, 20X2, and an additional 20% interest on January 1, 20X3, for $26,000.There was no excess of cost or book value on either investment.The balance sheets of Company, S which pays no dividends, follow: ?

$$\begin{array} { l r r r } & 12 / 31 / \mathrm { X } 3 & 12 / 31 / \mathrm { X } 2 & 01 / 01 / \mathrm { X } 2 \\\text { Total assets } & \$ 160,000 & \$ 130,000 & \$ 120,000 \\\\\text { Common stock } & \$ 100,000 & \$ 100,000 & \$ 100,000 \\\text { Retained eamings } & \underline { 60,000 } & \underline { 30,000 } & \underline { 20,000} \\\text { Total equity } & \$ 160,000 & \$ 130,000 & \$ 120,000\end{array}$$
For 20X3, Company P reports investment income of ____.

• A)-$18,000
• B)-$12,000
• C)-$9,000
• D)-$6,000

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