Rambo Company Acquired 40% of the Voting Stock of Boulder

question 25

Multiple Choice

Rambo 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 Rambo Company's investment in Boulder Company is $44 million.At the time of the acquisition,what accounts would be affected on the books of Rambo Company?

• A) Cash decreases $40 million and Investments increase $40 million
• B) Cash decreases $40 million and Stockholders' Equity increase $40 million
• C) Investments increase $40 million and Accounts Payable increase $40 million
• D) No entry

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Definitions:

Sensory-Motor

Pertaining to the neural processes that integrate sensory input with motor output.

Preoperational

The stage of cognitive development in Piaget's theory, characterized by symbolic thinking, egocentrism, and a lack of logical reasoning.

Accommodation

The process by which the eye's lens changes shape to focus on near or distant objects, or in psychology, altering one's beliefs to make them compatible with reality.

Assimilation

A cognitive process where individuals integrate new information into existing knowledge structures or schemas.