Table 16-9
On January 2, 2017, Didek Corporation purchased 30% of the outstanding shares of Sim Corporation for $500,000. Net income reported by Sim Corporation for 2017 and 2018 was, respectively, $90,000 and $130,000. Dividends paid by Sim Corporation during 2017 and 2018 were, respectively, $30,000 and $45,000. Didek Corporation has representation on the Sim corporation board of directors.
-Referring to Table 16-9,assume on December 31,2018,Didek Corporation sells its investment in Sim Corporation for $440,000.Didek Corporation will report a:

Question

Quizplus · Accepted Answer

To calculate the gain or loss on the sale of an investment, we need to compare the selling price to the carrying value of the investment.

Carrying value of investment as of Dec 31, 2018:
- Cost of investment on Jan 2, 2017: $500,000
- Share of net income (2017-2018): 30% x ($90,000 + $130,000) = $72,000
- Share of dividends (2017-2018): 30% x ($30,000 + $45,000) = $22,500
- Adjusted carrying value: $500,000 + $72,000 - $22,500 = $549,500

Since the selling price of the investment is $440,000, Didek Corporation will report a loss on sale of investment of $103,500 ($549,500 - $440,000 = $103,500). Therefore, the correct answer is B.

Table 16-9 on January 2, 2017, Didek Corporation Purchased 30% of the of the Outstanding