Sheridan, Inc. acquired 40% of Pina Corporation's voting stock on January 1, 2021 for $1060000. During 2021, Pina earned $364000 and paid dividends of $250000. Sheridan's 40% interest in Pina gives Sheridan the ability to exercise significant influence over Pina's operating and financial policies. During 2022, Pina earned $533000 and paid cash dividends of $138000 on April 1 and $138000 on October 1. On July 1, 2022, Sheridan sold half of its stock in Pina for $681000 cash. What should the gain

1 answer
Question:

Sheridan, Inc. acquired 40% of Pina Corporation's voting stock on January 1, 2021 for $1060000. During 2021, Pina earned $364000 and paid dividends of $250000. Sheridan's 40% interest in Pina gives Sheridan the ability to exercise significant influence over Pina's operating and financial policies. During 2022, Pina earned $533000 and paid cash dividends of $138000 on April 1 and $138000 on October 1. On July 1, 2022, Sheridan sold half of its stock in Pina for $681000 cash. What should the gain be on sale of this investment in Sheridan's 2022 income statement?

Answers

Answer:$102,500Explanation:As per the given question the solution of gain be on sale is provided below:- For reaching the gain be on sale first we need to follow some steps which is following below:-Step 1December 31, 2021 Investment = Initial investment + Net income - Dividend = $1,060,000 + ($364,000 × 40%) - ($250,000 × 40%)= $1,060,000 + $145,600 - $100,000= $1,205,600 - $100,000= $1,105,600Step 2July 1,2022 Investment = December 31, 2021 Investment + Net income - Dividend= $1,105,600 + ($533,000 × 6 months ÷ 12 months × 40%) - ($138,000 × 40%)= $1,105,600 + $106,600 - $55,200= $1,212,200 - $55,200= $1,157,000Step 3Now, the investment half value = $1,157,000 ÷ 2 = $578,500and finallySo, Gain = Stock - Half value of Investment= $681,000 - $578,500= $102,500So, we have calculated the gain be on sale in Sheridan's 2022 income statement by using the above formula.

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