Problem 2-5 - 3. 20% x net income for the year 4. 460 [340...

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Problem 2-5 (a) (i) 20,000 x 20 400,000 (ii) Original cost 340,000 share of income (20% x (200,000 + 225,000)) 85,000 less: share of dividends (20% x (150,000 + 160,000))(62,000) 363,000 (iii) 20,000 x 20 400,000 (b) (i) Year 4 Year 5 Year 6 Total Dividend income (1) 30,000 32,000 35,000 97,000 Gain on sale (2) 20,000 40,000 60,000 120,000 Net income 50,000 72,000 95,000 217,000 Total OCI 0 0 0 0 (ii) Year 4 Year 5 Year 6 Total Equity income (3) 40,000 45,000 48,000 133,000 Gain on sale (4) 0 0 84,000 84,000 Net income 40,000 45,000 132,000 217,000 Total OCI (4) 0 0 0 0 (iii) Year 4 Year 5 Year 6 Total Dividend income (1) 30,000 32,000 35,000 97,000 Gain on sale (5) 0 0 120,000 120,000 Net income 30,000 32,000 155,000 217,000 Other comprehensive income Unrealized gain (2) 20,000 40,000 60,000 120,000 Reverse unrealized gains 0 0 (120,000) (120,000) Total OCI 20,000 40,000 (60,000) 0
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Notes: 1. 20% x dividends paid during year 2. 20,000 x change in share price during year
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Unformatted text preview: 3. 20% x net income for the year 4. 460 [340 + (40 + 45 +48) (30 + 32 + 35)] = 84 5. 20,000 x 23 340,000 = 120,000 (c) The total income over the three-year period is the same for all four situations. This is not unusual in accounting. Although the different methods report different income each year, in the long run, the income is the same under all methods. The total income is usually equal to the difference between cash received and cash paid over the life of the investment which is $217,000 calculated as follows: Cash received Proceeds from sale 460,000 Dividends received (30 + 32 + 35) 97,000 Total proceeds 557,000 Cash disbursed Cost of investment 340,000 Change in cash 217,000...
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This note was uploaded on 02/19/2012 for the course ACCT 4443 taught by Professor Young during the Spring '12 term at Saint Mary's University Texas.

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Problem 2-5 - 3. 20% x net income for the year 4. 460 [340...

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