Question

sox corporation purchased a 35% interest in hack corporation for $1,750,000 on january 1, 2018. on november 1, 2018, hack declared and paid $2.0 million in dividends. on december 31, hack reported a net loss of $4.3 million for the year. what amount of loss should sox report on its income statement for 2018 relative to its investment in hack

Answer 1

Answer:

$1,050,000

Explanation:

Given that,

Sox corporation purchased a 35% interest in hack corporation for $1,750,000.

On November 1, 2018, hack declared and paid dividends = $2.0 million

On December 31, hack reported a net loss during the year = $4.3 million

Carrying value:

= Purchased value - 35%(Dividend value)

= $1,750,000 - (0.35 × $2,000,000)

= $1,750,000 - $700,000

= $1,050,000

Net loss of Sox = 35% of net loss during the year

                         = 0.35 × $4,300,000

                         = $1,505,000

Since, the carrying value is less than the net loss of sox. Therefore, the net loss of $1,050,000 to be recognized by the sox corporation.