PROBLEM - On January 1, 2010 Jumbo Investments Inc. 11,000 shares of Carmella's Imports, Ltd. for $220,000 which represents 11% of the outstanding stock. On January 1, 2011 Jumbo Investments Inc. purchased an additional 22,000 shares (22%) of Carmella's Imports, Ltd. for $605,000. The January 2011 purchase gives Jumbo Investments the ability to exercise significant influence over Carmella's Imports, Ltd. Assume that no goodwill is involved in either acquisition and the original 11% investment was treated as an available for sale security.
Net income and dividends for Carmella's Imports, Ltd are as follows and should be assumed to have occurred evenly through the years.
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Net Income
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Total Annual Cash Dividends (paid quarterly)
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2010
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$210,000
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$82,000
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2011
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$368,000
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$120,000
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2012
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$422,000
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$200,000
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On July 1, 2012 Jumbo Investments Inc. sells 12,000 shares (12%) of Carmella's Imports, Ltd. to JoeyCorp Enterprises for $38.25 per share. Jumbo retains the ability to significantly influence Carmella's Imports, Ltd.
For the year ending December 31, 2012 prepare 1) a schedule computing the gain on sale of stock, 2) the Investment earnings, and 3) the Investment account balance, related to the investment in Carmella's Imports, Ltd.