Sox Corporation purchased a 40% interest in Hack Corporation for $1,975,000 on January 1, 2016. On November 1, 2016, Hack declared and paid $2.9 million in dividends. On December 31, Hack reported a net loss of $4.6 million for the year. What amount of loss should Sox report on its income statement for 2016 relative to its investment in Hack?
SOX Corporation purchased a \(40 \%\) interest in the Hack Corporation for \(\$ 1,975,000 .\)
On Nov 1, 2016 Hack declared and paid \$2,900,000 million in dividends.
Calculate the carrying value:
$$ \begin{aligned} \text { CarryingValue } &=\$ 1,975,000-40 \%(2,900,000) \\ &=\$ 1,975,000-\$ 1,160,000 \\ &=\$ 815,000 \end{aligned} $$
Net Loss given during the year reported by Hack is \(\mathbf{4 , 6 0 0 , 0 0 0}\)
Net Loss of \(\mathbf{S O X}\) is
$$ \begin{array}{l} =\$ 4,600,000 \times 40 \% \\ =\$ 1,840,000 \end{array} $$
The value of carrying value is less than the net loss, since investments cannot be zero loss to the extent of carrying value is to be recognized.
Therefore, net loss to be recognized in the income statement is \(\$ 815,000\) to be reported by SOX Corporation.
Sox Corporation purchased a 40% interest in Hack Corporation for $1,975,000 on January 1, 2016. On...