Assume that you are Jolee Company's accountant. Company owner Mary Jolee has reviewed the 2017 financial statements

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Assume that you are Jolee Company's accountant. Company owner Mary Jolee has reviewed the 2017 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, 2015, at a cost of $500,000. This stock purchase represented a 40% interest in Kemper. The 2016 income statement reported that earnings from all investments were $126,000. On January 3, 2017, Jolee Company sold the Kemper stock for $575,000. Kemper did not pay any dividends during 2016 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 2017 income statement should report a $75,000 gain on the sale.
Required
Draft a half-page memorandum to Mary Jolee explaining why the $6,000 loss on sale of Kemper stock is correctly reported.
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
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Fundamental Accounting Principles

ISBN: 978-1259536359

23rd edition

Authors: John Wild, Ken Shaw, Barbara Chiappett

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