Memo: From, J To, MJ Dated: May 22, 2016 Subject: Explanation for reporting $6,000 as loss suffered from the sale of K stocks. Dear MJ, This memo is in response to your doubt that the 2015 income statement should report a $75,000 gain on the sale of K’s stocks. The loss of $6,000 on sale of common stocks of K is reported correctly in the financial statement. The reporting of this loss is as per the equity method, which suggests that the investment of a company should report at a cost to the investor, including the portion of undistributed earnings earned by the investor when stock was purchased. When these stocks are sold, the cost of stock and fair value is compared. Based on this, the gain or loss on security is computed.

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Answer 1

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Chapter C, Problem 4BTN

To determine

Memo:

From,

J

To,

MJ

Dated: May 22, 2016

Subject: Explanation for reporting $6,000 as loss suffered from the sale of K stocks.

Dear MJ,

This memo is in response to your doubt that the 2015 income statement should report a $75,000 gain on the sale of K’s stocks.

The loss of $6,000 on sale of common stocks of K is reported correctly in the financial statement. The reporting of this loss is as per the equity method, which suggests that the investment of a company should report at a cost to the investor, including the portion of undistributed earnings earned by the investor when stock was purchased. When these stocks are sold, the cost of stock and fair value is compared. Based on this, the gain or loss on security is computed.

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Question

Chapter C, Problem 4BTN

To determine

Memo:

From,

J

To,

MJ

Dated: May 22, 2016

Subject: Explanation for reporting $6,000 as loss suffered from the sale of K stocks.

Dear MJ,

This memo is in response to your doubt that the 2015 income statement should report a $75,000 gain on the sale of K’s stocks.

The loss of $6,000 on sale of common stocks of K is reported correctly in the financial statement. The reporting of this loss is as per the equity method, which suggests that the investment of a company should report at a cost to the investor, including the portion of undistributed earnings earned by the investor when stock was purchased. When these stocks are sold, the cost of stock and fair value is compared. Based on this, the gain or loss on security is computed.

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Answer 3

Question

Chapter C, Problem 4BTN

To determine

Memo:

From,

J

To,

MJ

Dated: May 22, 2016

Subject: Explanation for reporting $6,000 as loss suffered from the sale of K stocks.

Dear MJ,

This memo is in response to your doubt that the 2015 income statement should report a $75,000 gain on the sale of K’s stocks.

The loss of $6,000 on sale of common stocks of K is reported correctly in the financial statement. The reporting of this loss is as per the equity method, which suggests that the investment of a company should report at a cost to the investor, including the portion of undistributed earnings earned by the investor when stock was purchased. When these stocks are sold, the cost of stock and fair value is compared. Based on this, the gain or loss on security is computed.

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Answer 4

Question

Chapter C, Problem 4BTN

To determine

Memo:

From,

J

To,

MJ

Dated: May 22, 2016

Subject: Explanation for reporting $6,000 as loss suffered from the sale of K stocks.

Dear MJ,

This memo is in response to your doubt that the 2015 income statement should report a $75,000 gain on the sale of K’s stocks.

The loss of $6,000 on sale of common stocks of K is reported correctly in the financial statement. The reporting of this loss is as per the equity method, which suggests that the investment of a company should report at a cost to the investor, including the portion of undistributed earnings earned by the investor when stock was purchased. When these stocks are sold, the cost of stock and fair value is compared. Based on this, the gain or loss on security is computed.

Expert Solution & Answer

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Answer 5

Chapter C, Problem 4BTN

To determine

Memo:

From,

J

To,

MJ

Dated: May 22, 2016

Subject: Explanation for reporting $6,000 as loss suffered from the sale of K stocks.

Dear MJ,

This memo is in response to your doubt that the 2015 income statement should report a $75,000 gain on the sale of K’s stocks.

The loss of $6,000 on sale of common stocks of K is reported correctly in the financial statement. The reporting of this loss is as per the equity method, which suggests that the investment of a company should report at a cost to the investor, including the portion of undistributed earnings earned by the investor when stock was purchased. When these stocks are sold, the cost of stock and fair value is compared. Based on this, the gain or loss on security is computed.

Answer 6

Chapter C, Problem 4BTN

To determine

Memo:

From,

J

To,

MJ

Dated: May 22, 2016

Subject: Explanation for reporting $6,000 as loss suffered from the sale of K stocks.

Dear MJ,

This memo is in response to your doubt that the 2015 income statement should report a $75,000 gain on the sale of K’s stocks.

The loss of $6,000 on sale of common stocks of K is reported correctly in the financial statement. The reporting of this loss is as per the equity method, which suggests that the investment of a company should report at a cost to the investor, including the portion of undistributed earnings earned by the investor when stock was purchased. When these stocks are sold, the cost of stock and fair value is compared. Based on this, the gain or loss on security is computed.

Answer 7

Chapter C, Problem 4BTN

To determine

Memo:

From,

J

To,

MJ

Dated: May 22, 2016

Subject: Explanation for reporting $6,000 as loss suffered from the sale of K stocks.

Dear MJ,

This memo is in response to your doubt that the 2015 income statement should report a $75,000 gain on the sale of K’s stocks.

The loss of $6,000 on sale of common stocks of K is reported correctly in the financial statement. The reporting of this loss is as per the equity method, which suggests that the investment of a company should report at a cost to the investor, including the portion of undistributed earnings earned by the investor when stock was purchased. When these stocks are sold, the cost of stock and fair value is compared. Based on this, the gain or loss on security is computed.

Answer 8

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Ch. C - Prob. 1MCQ Ch. C - Prob. 2MCQ Ch. C - Prob. 3MCQ Ch. C - Prob. 4MCQ Ch. C - Prob. 5MCQ Ch. C - Prob. 1DQ Ch. C - Prob. 2DQ Ch. C - Prob. 3DQ Ch. C - Prob. 4DQ Ch. C - Prob. 5DQ

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