1. Russell, Inc. acquired 30% of Dayton Corporation\'s voting stock on January 1
ID: 2446097 • Letter: 1
Question
1. Russell, Inc. acquired 30% of Dayton Corporation's voting stock on January 1, 2014 for $800,000. During 2014, Dayton earned $320,000 and paid dividends of $200,000. Russell's 30% interest in Dayton gives Russell the ability to exercise significant influence over Dayton's operating and financial policies. During 2015, Dayton earned $400,000 and paid dividends of $120,000 on April 1 and $120,000 on October 1. On July 1, 2015, Russell sold half of its stock in Dayton for $528,000 cash. What should be the gain on sale of this investment in Russell's 2015 income statement?
$110,000
$128,000
$80,000
None of these answers are correct
$98,000
2. During 2014 Lipton Company purchased 8,000 shares of Michigan, Inc. for $30 per share. The investment was classified as a trading security. During the year Lipton Company sold 2,000 shares of Michigan, Inc. for $35 per share. At December 31, 2014 the market price of Michigan, Inc.'s stock was $28 per share. What is the total amount of gain/(loss) that Lipton Company will report in its income statement for the year ended December 31, 2014 related to its investment in Michigan, Inc. stock?
($6,000)
$10,000
($2,000)
None of these answers are correct
($16,000)
Explanation / Answer
Value of half the Invesment/Purchase price 400000 Add: Prop. Income- 2014- 1/2*30%*320000 48000 2015-1/2*1/2*30%*400000 30000 Less: Dividends Recd.- 2014-1/2*30%*200000 30000 2015-1/2*30%*120000 18000 Value of Investment on July 1,2015 430000 Sale price 528000 Gain on slae 98000 ANSWER---- $ 98000( By Equity method of Investment accounting) Qty. Price Value Total Purchase 8000 30 240000 Sale 2000 35 70000 Purchase price of sale 2000 30 60000 Gain on sale(2000*5) 10000 Balance shares(8000-2000) 6000 30 180000 Market value 6000 28 168000 Unrealised loss -12000 Net loss to be reported in the Income statement -12000+10000= -2000 ANSWER ---- ($ 2000)
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