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Sunland, Inc. acquired 40% of Cheyenne Corporation's voting stock on January 1, 2021 for $900000. During...

Sunland, Inc. acquired 40% of Cheyenne Corporation's voting stock on January 1, 2021 for $900000. During 2021, Cheyenne earned $361000 and paid dividends of $244000. Sunland's 40% interest in Cheyenne gives Sunland the ability to exercise significant influence over Cheyenne's operating and financial policies. During 2022, Cheyenne earned $530000 and paid cash dividends of $166000 on April 1 and $166000 on October 1. On July 1, 2022, Sunland sold half of its stock in Cheyenne for $627000 cash.

What should the gain be on sale of this investment in Sunland's 2022 income statement?

Solutions

Expert Solution

First of all, we must know, what is significant influence ??
Influence exerted (or presumed to be exerted) by a firm over a second firm whose 20 to 50 percent of shares are owned by the first firm.
Significant influence menas participation in the financial and operating policies without necessarily having full control over them.
Firms holding such equity stakes are required to declare and account for them in their financial statements
Now, accounting for Sunland Inc. ( It has significant influence )
Investment in Cheyenne corp. 900000
Cash 900000
2021
Investment in Cheyenne corp. 144400
Revenue from investment ( 361000 * 40 % ) 144400
( to record the share in net income )
Cash 97600
Investment in Cheyenne corp.( 244000 * 40 % ) 97600
( To record divdiend )
2022
Investment in Cheyenne corp. 212000
Revenue from investment ( 530000 * 40 % ) 212000
( to record the share in net income )
Cash 66400
Investment in Cheyenne corp.( 166000 * 40 % ) 66400
( To record divdiend )
July 1, 2022
Cash 627000
Loss on sale of investment 81000
Investment in Cheyenne corp. 546000
( 900000 + 144000 - 97600 + 212000 - 66400 ) * 50%
Oct. 1, 2022
Cash 33200
Investment in Cheyenne corp.( 166000 * 20 % ) 33200
( To record divdiend )

ekkarill92 answered 1 year ago
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