What is reported on the balance sheet and income statement for Butch Co. at 12/31/2019? Butch Co. was a 30% owner of Sundance Corp., holding 210,000 shares of Sundance’s common stock on December 31,...
- What is reported on the balance sheet and income statement for Butch Co. at 12/31/2019?
Butch Co. was a 30% owner of Sundance Corp., holding 210,000 shares of Sundance’s common stock on December 31, 2018. The investment account had the following entries:
|
Investment in Sundance Corp. |
|||
|
1/1/17 Cost |
3,180,000 |
12/6/17 Dividend Received |
150,000 |
|
12/31/17 Share of Income |
390,000 |
12/5/18 Dividend Received |
240,000 |
|
12/31/18 Share of Income |
510,000 |
||
On January 2, 2019, Butch sold 126,000 shares of Sundance for $3,440,000, thereby losing its significant influence. During the year 2019, Sundance experienced the following results of operations and paid the following dividends to Butch.
|
2019 |
Sundance Income (Loss) |
Dividends paid to Butch |
|
$1,480,000 |
$50,400 |
At December 31, 2019, the fair value of Sundance shares held by Butch is $375,000. This is the first reporting date since the January 2 sale.
Homework Answers
The cost price per share for Butch Corp was Rs 15.14$ (3180000/210000). The share of income is earned by Sundance shares is to be added to the cost price of the share and hence the value of Share as on 31.12.2019 is $19.42 ((3180000+390000+510000)/210000).
On 01.02.2019 butch sold 126000 share of sundance for $3440000 and hence the profit on sale of share comes to $992000 i.e(126000*19.42-3440000).
Hence as on 31.12.2019 the total income to be shown in profit loss account of Butch Corp comes to $1042400($992000+$50400 dividend).
The cost price of the remaining shares as on 31.12.2019 comes to $17.31per Share.
The cost of $17.31 shares comes as under:
Total Share held by Butch as 31.12.2018 was 210000 which is 30% of total shares of Sundance hence total shares of sundance come to 700000 shares (210000*100/30).
The loss as on 31.12.2019 per share comes to $2.11( $1480000(loss)/700000).Hence the amount of $2.11 has to reduced from the orignal value of holding per share which is $19.42 per share.
Hence the income to be show in Butch Co profit loss as on 31.12.2019 is to be $1042400($992000+$50400 dividend). and the price of Investment to be shown in balance sheet comes to $1454400
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