InvestCo purchases 30% of NewCo's stock on January 1, Year 1, for $100,000.In Year 1, NewCo paid total dividends of $30,000 and had a net income of $70,000.In Year 2, NewCo suffered a loss of $20,000 and paid no dividends.On January 1, Year 3, InvestCo sells its investment in NewCo for $105,000.How is the sale recorded?

Question

Quizplus · Accepted Answer

The initial investment was $100,000. In Year 1, InvestCo's share of NewCo's net income was $21,000 (30% of $70,000), increasing the investment to $121,000. Dividends received were $9,000 (30% of $30,000), reducing the investment to $112,000. In Year 2, InvestCo's share of the loss was $6,000 (30% of $20,000), reducing the investment to $106,000. Selling for $105,000 results in a $1,000 loss.

InvestCo Purchases 30% of NewCo's Stock on January 1, Year