FIN ACCT 557 (ACC 557)
Axia College of University of Phoenix (UoP)
Weygandt, Kieso, and Kimmel, 5th Edition
Decision Making Across The Organization
BYP 13-4 At the beginning of the question and answer portion of the annual stockholders' meeting of Kemper Corporation, stockholder Mike Kerwin asks, “Why did management sell the holdings in UMW Company at a loss when this company has been very profitable during the period its stock was held by Kemper?”
Since president Tony Chavez has just concluded his speech on the recent success and bright future of Kemper, he is taken aback by this question and responds, “I remember we paid $1,300,000 for that stock some years ago, and I am sure we sold that stock at a much higher price. You must be mistaken.”
Kerwin retorts, “Well, right here in footnote number 7 to the annual report it shows that 240,000 shares, a 30% interest in UMW, were sold on the last day of the year. Also, it states that UMW earned $520,000 this year and paid out $160,000 in cash dividends. Further, a summary statement indicates that in past years, while Kemper held UMW stock, UMW earned $1,240,000 and paid out $440,000 in dividends. Finally, the income statement for this year shows a loss on the sale of UMW stock of $180,000. So, I doubt that I am mistaken.”
Red-faced, president Chavez turns to you.
(a) What dollar amount did Kemper receive upon the sale of the UMW stock? Please explain
(b) Explain why both stockholder Kerwin and president Chavez are correct.
Click here for the SOLUTION