Question
How do I explain that the $6,000 loss on sale of Kemper stock is correctly reported based on the following information? Assume that your are
How do I explain that the $6,000 loss on sale of Kemper stock is correctly reported based on the following information?
Assume that your are Jolee Company's accountant. Company owner Mary Jolee has reviewed the 2017 financial statements you prepared and questions the $6,000 loss reported on the sale of its investment in Kemper Co. common stock. Jolee acquired 50,000 shares of Kemper's common stock on December 31, 2015, at a cost of $500,000. This stock purchase represented a 40% interest in Kemper. The 2012 income statement reported that earnings from all investments were $126,000. On January 3, 2017, Jolee Company sold the Kemper stock for $575,000. Kemper did not pay any dividends during 2016 but reported a net income of $202,500 for that year. Mary Jolee believes that because the Kemper stock purchase price was $500,000 and was sold for $575,000, the 2017 income statement should report a $75,000 gain on the sale.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started