Fundamental Accounting Principles
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At the beginning of 2003, Red Corporation purchased a long-term investment in Acme Corporation. The following information is available for the purchases:
% interest acquired 30%
# of shares purchased 300,000
Price/share $15.00
Amount paid $4,500,000
The following information is available for Acme for the years 2003-2007:
Year
Income
Dividends Share FMV
at End of Year
2003 $ 2,400,000 $1,500,000 $17.00
2004 $ 2,600,000 $1,600,000 $19.00
2005 $ 2,900,000 $1,800,000 $21.00
2006 $ 3,200,000 $2,000,000 $24.00
2007 $ 3,500,000 $2,200,000 $27.00
Totals $14,600,000 $9,100,000
On January 1, 2008, Red sold its investment in Acme for $27 per share.
Required:
a. How much income would Red report in the aggregate for the years 2003-2007? It is not necessary to show the income year by year.
b. How much income would Red report for 2008?
c. What was Red's net income from its investment in Acme over the whole life of the investment, from the purchase to the sale?
d. What was Red's net cash flow from its investment in Acme over the whole life of the investment, from the purchase to the sale?
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Solution Summary
This question involves the fundamentals of accounting. The aggregate income year by year is given.
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At the beginning of 2003, Red Corporation purchased a long-term investment in Acme Corporation. The following information is available for the purchases:
% interest acquired 30%
# of shares purchased 300,000
Price/share $15.00
Amount paid $4,500,000
The following information is available for Acme for the years 2003-2007:
Year
Income
Dividends Share FMV
at End of Year
2003 $ ...
Purchase this Solution
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