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.At the time of the acquisition,what accounts would be affected on the books of Rocky Company?
A)Cash decrease $40 million and Investments increase $40 million
B)Cash decrease $40 million and Stockholders' Equity increase $40 million
C)Investments increase $40 million and Accounts Payable increase $40 million
D)No entry

Question

Quizplus · Accepted Answer

When Rocky Company acquired 40% of the voting stock of Boulder Company for $40 million, they paid cash for the investment. Therefore, the accounts affected on the books of Rocky Company are:
- Cash: decreased by $40 million
- Investments: increased by $40 million

So, the correct choice is A.

Rocky Company Acquired 40% of the Voting Stock of Boulder