Question

Jax Company used the acquisition method when it acquired its investment in Saxton Company. Jax now sells some of its shares of Saxton such that neither control nor significant influence exists. Which of the following statements is true?

A.The difference between selling price and acquisition value is recorded as a realized gain or loss.
B The difference between selling price and acquisition value is recorded as an unrealized gain or loss.
C. The difference between selling price and carrying value is recorded as a realized gain or loss.
D. The difference between selling price and carrying value is recorded as an unrealized gain or loss.
E. The difference between selling price and carrying value is recorded as an adjustment to retained earnings.

Answer 1

C. The difference between selling price and carrying value is recorded as a realized gain or loss.

Step-by-step explanation:

In the case of the acquisition method, the role of significant influence will not be there. Since the shares are sold which shows a realized gain or loss by taking the difference between the selling price and carrying value.

As through the selling price we know about the gain or loss amount, and the carrying value would represent the book value which records in the books of accounts.

Hence, the correct option is C.