Question

Assume that, on January 1, 2013, Sosa Enterprises paid $3,000,000 for its investment in 36,000 shares of Orioles Co. Further, assume that Orioles has 120,000 total shares of stock issued and estimates an eight-year remaining useful life and straight-line depreciation with no residual value for its depreciable assets.

At January 1, 2013, the book value of Orioles' identifiable net assets was $7,000,000, and the fair value of Orioles was $10,000,000. The difference between Orioles' fair value and the book value of its identifiable net assets is attributable to $1,800,000 of land and the remainder to depreciable assets. Goodwill was not part of this transaction.

The following information pertains to Orioles during 2013:

Net income: $600000
Dividends: $360000
MKT price: $80/share

What amount would Sosa Enterprises report in its year-end 2013 balance sheet for its investment in Orioles Co.?

Answer 1

Sosa Enterprises would report $10,000,000 as its investment in Orioles Co. on its year-end 2013 balance sheet.

Step-by-step explanation:

To determine the amount that Sosa Enterprises would report in its year-end 2013 balance sheet for its investment in Orioles Co., we need to consider the changes in the fair value of the investment and any dividends received. The investment was initially valued at $3,000,000 and had a fair value of $10,000,000 on January 1, 2013. However, since there was no mention of any subsequent changes in the fair value, we can assume that the value remained the same throughout the year. Therefore, Sosa Enterprises would report $10,000,000 as its investment in Orioles Co. on its year-end 2013 balance sheet.