Question

Assume that, on January 1, 2021, Sosa Enterprises paid $2,240,000 for its investment in 30,000 shares of Orioles Co. Further, assume that Orioles has 100,000 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, 2021, the book value of Orioles' identifiable net assets was $7,260,000, 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 $1,950,000 of land and the remainder to depreciable assets. Goodwill was not part of this transaction. The following information pertains to Orioles during 2021:

Net Income $ 500,000 Dividends declared and paid $ 300,000 Market price of common stock on 12/31/2021 $ 80 /shareWhat amount would Sosa Enterprises report in its year-end 2021 balance sheet for its investment in Orioles Co.?

Answer 1

Amount reported in the year-end 2021 is $2,270,375

Step-by-step explanation:

`\text{The percentage of investment in Orioles} = (30000 \ shares )/(100000 \ shares) = 30 \ percent.`

The difference between fair value and the book value attributable to depreciable assets = $10,000,000 -$7,260,000 -$1,950,000

=$790,000

Attributable to depreciation assets:

`= (790000)/(8 \ years) * 30 percent \\`

`= 29625 dollars.`

Balance sheet for its investment in Orioles:

Particulars Amount

Cash paid to Orioles = $2,240,000

Add: net income (500,000 *30%) = $150,000

Less: Dividends(300,000 *30%) = ($90,000)

Less: Attributable to depreciation. = ($29,625)

Amount reported in the year-end 2021. = $2,270,375