Question

Assume that Reed Company purchases 18,000 common shares of Aiello Company for $8 cash per share. During the year, Reed receives a cash dividend of $0.90 per common share from Aiello, and the year-end market price of Aiello common stock is $9 per share. Reed Company classified the investment as trading securities.
How much income does Reed report relating to this investment for the year?
Select one:
a. $18,000
b. $145,800
c. $144,000
d. $34,200

Answer 1

Answer:

option d is right

income does Reed report relating to this investment for the year is $34200

Explanation:

Given data

purchases shares = 18000

1 share value = $8

cash dividend = $.090 per common share

common stock = $9 per share

to find out

total income

solution

we know total income for year = total dividend + unrealized gain by the change of fair      .....................1

we say here

total dividend received is  purchases shares  × cash dividend

total dividend = 18000  × 0.90

total dividend is $16200   .................2

and

Unrealized gain by change of fair  = (common stock per share  - 1 share value  )  × purchases shares

Unrealized gain by change of fair  = (9 - 8 ) 18,000

Unrealized gain by change of fair  is  $18,000       .................3

put equation 2 and 3 in equation 1 we get

total income for year = total dividend + unrealized gain by the change of fair

total income for year = 16200 + 18,000

income does Reed report relating to this investment for the year is $34200

option d is right