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

Question

Quizplus · Accepted Answer

When Rambo Company acquired 40% of the voting stock of Boulder Company for $40 million, it would have recorded the following journal entry:
Investments in Boulder Company   $40 million
Cash                                            $40 million
At the time of the acquisition, the investments account would have increased by $40 million, and the cash account would have decreased by $40 million.

Rambo Company Acquired 40% of the Voting Stock of Boulder