Question

In: Accounting

Apple Company purchased 42% of Orange Company's common stock for $418,000 on January 1, 2021. During...

Apple Company purchased 42% of Orange Company's common stock for $418,000 on January 1, 2021. During 2021, Orange Company reported a net income of $79,000 and paid dividends totaling $13,000. For 2022, Orange Company paid dividends totaling $21,000. On December 31, 2022, Apple Company sold three-fourths of its investment in Orange Company for $319,625 cash. Apple Company reported a loss on the sale equal to $12,460. What is the amount of net income earned by Orange Company in 2022?

Expert Solution

Answer:

On December 31, 2022:

Apple Company sold three-fourths of its investment in Orange Company for an amount = $319,625

Add, Apple Company reported a loss on the sale equal to = $12,460

Hence, value of three-fourths of Apple Company's investment in Orange Company on Dec.31, 2022 = $319,625 + $12,460 = $332,085

Hence, value of Apple Company's investment in Orange Company on Dec. 31, 2022

= $332,085 / 75% = $442,780

We calculate below Apple Company's Equity Income in Orange Company for 2022:

As calculated above:

Apple Company's Equity Income in Orange Company for 2022 =

Value of Apple Company's investment in Orange Company as on 31st Dec 2022 - (Value of Apple Company's investment in Orange Company as on 31st Dec 2021 - Apple Company's share of dividends from Orange Company in 2022)

= $442,780 - ($445,720 - $8,820)

= $5,880

Hence:

Net income earned by Orange Company in 2022 = $5,880 /42% = $14,000

Net income earned by Orange Company in 2022 = $14,000

ekkarill92 answered 1 year ago

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