Assume that, on January 1, 2021, Sosa Enterprises paid
$2,240,000 for its investment in 30,000 shares of Orioles Co.
Further, assume that Orioles has 100,000 total shares of stock
issued and estimates an eight-year remaining useful life and
straight-line depreciation with no residual value for its
At January 1, 2021, the book value of Orioles' identifiable net assets was $7,260,000, and the fair value of Orioles was $10,000,000. The difference between Orioles' fair value and the book value of its identifiable net assets is attributable to $1,950,000 of land and the remainder to depreciable assets. Goodwill was not part of this transaction.
The following information pertains to Orioles during 2021:
|Dividends declared and paid||$||300,000|
|Market price of common stock on 12/31/2021||$||80||/share|
What amount would Sosa Enterprises report in its year-end 2021 balance sheet for its investment in Orioles Co.?
Investment in Orioles =30,000 shares / 100,000 shares = 30%
Difference between fair value and the book value attributable to depreciable assets = $10,000,000 -$7,260,000 -$1,950,000
Balance sheet for its investment in Orioles:
|Cash paid to Orioles||$2,240,000|
|Add: net income (500,000 *30%)||$150,000|
|Less: Dividends(300,000 *30%)||($90,000)|
|Less: Attributable to depreciation assest [(790,000 /8years)*30%]||($29,625)|
|Amount Sosa Enterprises report in its year-end 2021 balance sheet for its investment in Orioles||$2,270,375|
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