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 dividends of Boulder Company?
A)none
B)Cash increase $2 million and Stockholders' Equity increases $2 million
C)Cash increase $5 million and Stockholders' Equity increases $5 million
D)Cash increase $2 million and Investments decrease $2 million

Question

Quizplus · Accepted Answer

Rocky Company owns 40% of Boulder Company, so it receives 40% of the dividends, which is $2 million. The cash account increases by $2 million, and the investment account decreases by the same amount due to the dividend received.

Rocky Company Acquired 40% of the Voting Stock of Boulder