On January 1, 2020, X Company purchased 40,000 of Y Company's 50,000 outstanding voting shares for $400,000. The entire purchase discrepancy was allocated to land owned by Y. At December 31, 2021, the balance of the Investment Account in Y under the equity method was $432,000. On January 1, 2022, X sold 10,000 shares of Y on the open market for $120,000. The fair value of Y's land had increased for the 2 years prior to 2022.
What is the gain or loss on the sale of the 10,000 shares to be reported on X's consolidated financial statements, and how should this gain or loss be reported?
i. $12,000 gain reported in net income
ii. $12,000 gain reported as a direct credit to shareholders' equity
iii. $20,000 gain reported in net income
iv. $20,000 gain reported as a direct credit to shareholders' equity.