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

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