Question

Assume that you are Jolee Company’s accountant. Company owner Mary Jolee has reviewed the 2013 financial statements you prepared and questions the $ 6,000 loss reported on the sale of its investment in Kemper Co. common stock. Jolee acquired 50,000 shares of Kemper’s common stock on December 31, 2011, at a cost of $ 500,000. This stock purchase represented a 40% interest in Kemper. The 2012 income statement reported that earnings from all investments were $ 126,000. On January 3, 2013, Jolee Company sold the Kemper stock for $ 575,000. Kemper did not pay any dividends during 2012 but reported a net income of $ 202,500 for that year. Mary Jolee believes that because the Kemper stock purchase price was $ 500,000 and was sold for $ 575,000, the 2013 income statement should report a $ 75,000 gain on the sale.

Required
Draft a one- half page memorandum to Mary Jolee explaining why the $ 6,000 loss on sale of Kemper stock is correctly reported.




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  • CreatedNovember 26, 2013
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