Question

Cullumber, Inc. acquired 20% of Marigold Corporation's voting stock on January 1, 2021 for $930000. During 2021, Marigold earned $400000 and paid dividends of $248000. Cullumber's 20% interest in Marigold gives Cullumber the ability to exercise significant influence over Marigold's operating and financial policies. During 2022, Marigold earned $524000 and paid cash dividends of $174000 on April 1 and $174000 on October 1. On July 1, 2022, Cullumber sold half of its stock in Marigold for $684000 cash.

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

$195000.

$219000.

$176800.

$203800.

Answer 1

Explanation:

Cullumber Inc. purchased 20% share of marigold corporation for $930000.on January,1,2021.

Cost of 10% of marigold shares acquired
= $930000 is for 20%
= 930000X 50% = 465000 is for 10% of shares.

Columbus sold half of its total shares holding (i.e 10%) @ $684000.

Therefore, profit or loss = $684000-465000 = $ 219,000 profit.

So, Option "B" is correct answer.
(i.e $219,000)