Company owner Abel Terrio has reviewed the 2011 financial statements you prepared for Jackson Company as the accountant, and questions the $6,000 loss reported on the sale of its investment in Blackhawk Co. common stock.
Jackson acquired 50,000 shares of Blackhawk’s common stock on December 31, 2009, at a cost of $500,000. This stock purchase represented a 40% interest in Blackhawk. The 2010 income statement reported that earnings from all investments were $126,000.
On January 3, 2011, Jackson Company sold the Blackhawk stock for $575,000. Blackhawk did not pay any dividends during 2010 but reported a net income of $202,500 for that year. Terrio believes that because the Blackhawk stock purchase price was $500,000 and was sold for $575,000, the 2011 income statement should report a $75,000 gain on the sale.
Draft a one-half page memorandum (at least 2 paragraphs) to Terrio explaining why the $6,000 loss on sale of Blackhawk stock is correctly reported.
You will be graded on how well you address the questions. Addressing the questions involves identifying relevant facts, applying the chapter concepts,, and answering each question completely. Proper APA formatting is expected and required (cited sources, reference page, etc.). Supplement and synthesize your analysis with outsides scholarly sources. For assistance with APA citations, please visit the following links: The American Psychological Association Website:http://www.apastyle.org/