Rich, Inc. acquired 30% of Doane Corp.\'s voting stock on January 1, 2014 for $6

ID: 2423402 • Letter: R

Question

Rich, Inc. acquired 30% of Doane Corp.'s voting stock on January 1, 2014 for $600,000. During 2014, Doane earned $320,000 and paid dividends of $200,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2015, Doane earned $400,000 and paid dividends of $120,000 on April 1 and $120,000 on October 1. On July 1, 2015, Rich sold half of its stock in Doane for $528,000 cash. a) Before income taxes, what amount should Rich include in its 2014 income statement as a result of the investment? b) The carrying amount of this investment in Rich's December 31,2014 balance sheet should be? c) What should be the gain on sale of this investment in Rich's 2015 income statement? (I need the steps not only the answer, thanks)

Explanation / Answer

a)Rich should include

Net income 320,000 @30% his share = $96,000 as income

b)His investment will be orginal investment amount + net income - dividend recieved

$600,000 + 320,000 @30% - 200,000 @30% = $636,000 his baalnce sheet amount

c)in 2015 his investment will be

636,000 +400,000 @30% - 240,000 @30% = 684,000

since he sold half his share 684,000/2 = $342,000 cost

Cash recieved is $528,000

Gain on sales = $528,000 - 342,000 = $186,000