Question

Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2021 for $1,000,000. During 2021, Doane earned $400,000 and paid dividends of $250,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2022, Doane earned $500,000 and paid cash dividends of $150,000 on April 1 and $150,000 on October 1. On July 1, 2022, Rich sold half of its stock in Doane for $660,000 cash. What should the gain be on sale of this investment in Rich's 2022 income statement

Answer 1

$122,500

Step-by-step explanation:

Calculation for What should the gain be on sale of this investment in Rich's 2022 income statement

Gain on sales of investement=$660,000-[$1,045,000 – ($150,000 × 30%) + ($500,000 × 50% × 30%)/2]

Gain on sales of investement=$660,000-[($1,045,000 – $45,000 + $75,000)/2]

Gain on sales of investement=$660,000 – ($1,075,000 ÷ 2)

Gain on sales of investement=$660,000 – $537,500

Gain on sales of investement= $122,500

Therefore what should the gain be on sale of this investment in Rich's 2022 income statement is $122,500