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KPMG purchased 15% of the stock of RSM for $100,000. During 2019 RSM reported net income...

KPMG purchased 15% of the stock of RSM for $100,000. During 2019 RSM reported net income of $500,000. Additionally, RSM paid a total dividend of $50,000 to all shareholders. On 8/1/19, KPMG sold half of its stock in RSM for $140,000. What is the value of KPMG’s investment in RSM as of 12/31/18?

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Answer #1
Investment in RSM 15% $1,00,000
Dividends paid to all shareholders of RSM 100%           5,00,000
Dividend Paid to KPMG 15%              75,000
The total value of the investment $1,00,000
* Since the dividend income is in the nature of revenue and will be credited to the Profit and Loss Account.
On 1/8/2019 sold half of the investment $50,000
Capital Gain = Sale value - Book value of the Investment
Capital Gain = $140,000 - $50,000
$90,000
Therefore, KPMG's investment in RSM as on 31/12/2019 $50,000
Therefore, KPMG's investment in RSM as on 31/12/2018 $1,00,000
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