Question

On June 27, 2021, American Airlines distributed to its common shareholders 590,000 outstanding common shares of its investment in Kraft Foods. The book value on American Airline's books of Kraft's $1 par common stock was $3.90 per share. Immediately after the distribution, the market price of Kraft's stock was $4.40 per share. In its income statement for the year ended June 30, 2023, what amount should American Airlines report as gain on disposal of the stock (ignore taxes)?

Answer 1

$295,000

Step-by-step explanation:

Given the information:

• Total outstanding common shares: 590,000
• Shares value before deal = $3.9
• Shares value after deal = $4.4

The amount should American Airlines report as gain on disposal of the stock (ignore taxes) can be calculated as following formula:

Gain amount on disposal = Total number of shares × Difference in share value

= 590,000*($4.40 - $3.90)

= $295,000

Hence, gain on disposal of the stock of American Airlines is $295,000