Question

Sox Corporation purchased a 30% interest in Hack Corporation for $1,525,000 on January 1, 2021. On November 1, 2021, Hack declared and paid $1.1 million in dividends. On December 31, Hack reported a net loss of $4.0 million for the year. What amount of loss should Sox report on its income statement for 2021 relative to its investment in Hack

Answer 1

Answer:

$1,200,000

Explanation:

SOX Corporation purchased a 30% interest for $1,525,000

On November 1, 2021, Hack declared and paid $1,100,000 million in dividends

Hence, Carrying value = $1,525,000 - 30%($1,100,000)

Carrying value = $1,525,000 - $330,000

Carrying value = $1,195,000

Net loss given during the year reported by Hack is $4,000,000

Hence, Net Loss of SOX is $4,000,000 * 30%

Net Loss = $1,200,000

Therefore, the net loss to be recognized in the Income statement is $1,200,000