Jabiru Corporation purchased a 20% interest in Fish Company common stock on January 1,2008 for $300,000.This investment was accounted for using the complete equity method and the correct balance in the Investment in Fish account on December 31,2010 was $440,000.The original excess purchase transaction included $60,000 for a patent amortized at a rate of $6,000 per year.In 2011,Fish Corporation had net income of $4,000 per month earned uniformly throughout the year and paid $20,000 of dividends in May.If Jabiru sold one-half of its investment in Fish on August 1,2011 for $500,000,how much gain was recognized on this transaction?

Question

Quizplus · Accepted Answer

C)
Dec 31,2010 investment balance $440,000
Jabiru's interest in Fish's income from Jan 1-July 31:
($4,000 × 7 months × 20%)= 5,600
Less: Dividends ($20,000 × 20%)= (4,000)
Less: Seven months of patent amortization:
$500 × 7 = (3,500)
Investment account balance at July 31,2011 $438,100
Amount received from sale: $500,000
Book value of one-half interest (219,050)
Gain on sale $280,950

Jabiru Corporation Purchased a 20% Interest in Fish Company Common