AC$222$ Practice for Chapter $17$ Investments

Rich, Inc. acquired $30\%$ of Doane Corporation's voting stock on January $1,2018$ for $$1,000,000.$ During $2018,$ Doane earned $$400,000$ and paid dividends of $$250,000.$ Rich's $30\%$ interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During $2019,$ Doane earned $$500,000$ and paid cash dividends of $$150,000$ on April $1$ and $$150,000$ on October $1.$ On July $1,2019,$ Rich sold half of its stock in Doane for $$660,000$ cash.

$1.$Before income taxes, what amount should Rich include in its $2018$ income statement as a result of the investment?

a$.$ $$400,000.$

$b.$ $$250,000.$

$(c.)$ $$120,000.$

$400,000*0\mathrm{.}3$

$=120,000$

d$.$ $$75,000.$

$2.$ The carrying amount of this investment in Rich's December $31,2018$ balance sheet should be

a$.$ $$1,000,000.$

b$.$ $$1,045,000.$

c$.$ $$1,120,000.$

d$.$ $$1,150,000.$

$\frac{1,000,000}{45,000(120,000-75000)}\frac{120,000}{1,045,000}$

What should the gain be on sale of this investment in Rich's $2019$ income statement?

a$.$ $$160,000.$

b$.$ $$137,500.$

c$.$ $$122,500.$

$122500$

d$.$ $$100,000.$

$537500$