Question

Pink Inc. sells half of its 70% interest in Salmon Co. on January 1, 20X6. On that date, the fair value of Salmon as a whole is $940,000 and the carrying amount of Pink's 70% share of Salmon is $320,000. What, if any, is the gain on the sale of half of Pink's interest in Salmon?

A) $0
B) $9,000
C) $169,000
D) $338,000

Answer 1

The gain on the sale of half of Pink's interest in Salmon is $338,000.

Step-by-step explanation:

To determine the gain on the sale of half of Pink's interest in Salmon, we need to compare the fair value of the 70% share of Salmon before the sale with the carrying amount of Pink's 70% share of Salmon.

The fair value of Salmon as a whole is $940,000 and Pink's carrying amount of the 70% share is $320,000. Therefore, the fair value of Pink's 70% share is 70% of $940,000, which is $658,000.

Since Pink sells half of its interest in Salmon, the gain on the sale is the difference between the fair value of the 70% share and the carrying amount of the 70% share that is sold. The gain is calculated as follows:

Gain = (Fair Value - Carrying Amount) * % Interest Sold
Gain = ($658,000 - $320,000) * 50%
Gain = $338,000

Therefore, the gain on the sale of half of Pink's interest in Salmon is $338,000. The correct answer is option D.