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    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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    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 $ ...

    Solution Summary

    This question involves the fundamentals of accounting. The aggregate income year by year is given.

    $2.19

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