How do I explain to a customer about the $6000. loss reported on the sale of its investment of common stock that the customer has 40% interest. When the 2010 income statement reported earning form all investments were $126,000. On January 2011 the company sold the investment stock for $575,000 and was purchase for $500,000. The investment did not pay dividends during 2010?

Question

How do I explain to a customer about the $6000. loss reported on the sale of its investment of common stock that the customer has 40% interest. When the 2010 income statement reported earning form all investments were $126,000. On January 2011 the company sold the investment stock for $575,000 and was purchase for $500,000. The investment did not pay dividends during 2010?

Answer 1

To explain the $6000 loss reported on the sale of the investment of common stock to the customer, you can follow these steps:

1. Calculate the customer's 40% interest in the investment:
Multiply the total investment by the customer's ownership percentage:
Owner's interest = $500,000 x 40% = $200,000

2. Determine the customer's share of the loss:
The loss is calculated by subtracting the selling price from the purchase price:
Loss = $575,000 - $500,000 = $75,000

Now, calculate the customer's proportionate share of the loss:
Customer's share of the loss = $75,000 x 40% = $30,000

3. Explain the overall income situation:
The income statement reported earnings from all investments were $126,000 in 2010.

4. Account for the lack of dividends:
The investment did not pay any dividends during 2010.

Therefore, you can explain to the customer that there was a loss of $6,000 on the sale of the investment stock. The customer's 40% interest in the investment results in a proportionate share of the loss amounting to $30,000. It's important to mention that the overall income statement for 2010 showed earnings from all investments of $126,000, and the investment in question did not provide any dividends during that year.