Sale of Subsidiary Shares
Book Corporation purchased 90,000 shares of Lance Company at underlying book value of $3 per share on June 30, 20X1. On January 1, 20X5, Lance reported its net book value as $400,000 and continued to have 100,000 shares of common stock outstanding. On that date, Book sold 30,000 shares of Lance to Triple Corporation for $5.60 per share. Book uses the equity method in accounting for its investment in Lance and recorded a gain on sale of investments of $48,000 in its consolidated income statement for 20X5.
Required
Book’s vice president of finance, Robert Reader, has asked you to prepare a memo addressed to him presenting the alternative ways to record the difference between the carrying value and sale price of the shares that are sold and your recommendations on the preferred reporting alternative.
Citations to or quotations from the relevant authoritative accounting literature should be included in providing the basis of support for your recommendations.
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