Question

Welton, Inc., acquired 30% of Pearse Co.’s voting stock for $200,000 on January 2, Year 1, and did not elect the fair value option. The price equaled the carrying amount and the fair value of the interest purchased in Pearse’s net assets. Welton’s 30% interest in Pearse gave Welton the ability to exercise significant influence over Pearse’s operating and financial policies. During Year 1, Pearse earned $80,000 and paid dividends of $50,000. Pearse reported earnings of $100,000 for the 6 months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Welton sold half of its stock in Pearse for $150,000 cash. Pearse declared and paid dividends of $60,000 on October 1, Year 2. In its Year 2 income statement, what amount should Welton report as gain from the sale of half of its investment?

          Welton, Inc., acquired 30% of Pearse Co.’s voting stock for $200,000 on January 2, Year 1, and did not elect the fair value option. The price equaled the carrying amount and the fair value of the interest purchased in Pearse’s net assets. Welton’s 30% interest in Pearse gave Welton the ability to exercise significant influence over Pearse’s operating and financial policies. During Year 1, Pearse earned $80,000 and paid dividends of $50,000. Pearse reported earnings of $100,000 for the 6 months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Welton sold half of its stock in Pearse for $150,000 cash. Pearse declared and paid dividends of $60,000 on October 1, Year 2.
In its Year 2 income statement, what amount should Welton report as gain from the sale of half of its investment?

Added by Patricia A.

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