On 9/1/06, Palex, which reports on a calendar-year basis, sold 20% of its common stock holdings in its 75%-owned subsidiary, Salex, for $108,000. All of the shares owned of Salex were acquired several years ago in a business combination accounted for as a purchase. Palex uses the equity method of accounting. On 9/1/06, the carrying value of the investment account was $350,000 (the properly updated balance at that date). Salex reported net income of $44,000 for the 8 months ended 8/31/06, and $40,000 for the 4 months ended 12/31/06.
The conceptual analysis of the investment account had the following balances immediately before the sale:
Required:
(1) Update the conceptual analysis as a result of the disposal.
(2) Compute the gain or loss to be reported on the sale of the shares sold, and indicate whether it is a gain or a loss.
(3) Compute the amount that is reflected in Palex's general ledger account, Equity in Net Income of Subsidiary for 2006
(4) Compute the amount of the noncontrolling interest deduction to be reported in the consolidated income statement for 2006.

Question

On 9/1/06, Palex, which reports on a calendar-year basis, sold 20% of its common stock holdings in its 75%-owned subsidiary, Salex, for $108,000. All of the shares owned of Salex were acquired several years ago in a business combination accounted for as a purchase. Palex uses the equity method of accounting. On 9/1/06, the carrying value of the investment account was $350,000 (the properly updated balance at that date). Salex reported net income of $44,000 for the 8 months ended 8/31/06, and $40,000 for the 4 months ended 12/31/06.
The conceptual analysis of the investment account had the following balances immediately before the sale:
  Required:
(1) Update the conceptual analysis as a result of the disposal.
(2) Compute the gain or loss to be reported on the sale of the shares sold, and indicate whether it is a gain or a loss.
(3) Compute the amount that is reflected in Palex's general ledger account, Equity in Net Income of Subsidiary for 2006
(4) Compute the amount of the noncontrolling interest deduction to be reported in the consolidated income statement for 2006.

Quizplus · Accepted Answer

The Answer of On 9/1/06, Palex, which reports on a calendar-year basis, sold 20% of its common stock holdings in its 75%-owned subsidiary, Salex, for $108,000. All of the shares owned of Salex were acquired several years ago in a business combination accounted for as a purchase. Palex uses the equity method of accounting. On 9/1/06, the carrying value of the investment account was $350,000 (the properly updated balance at that date). Salex reported net income of $44,000 for the 8 months ended 8/31/06, and $40,000 for the 4 months ended 12/31/06.
The conceptual analysis of the investment account had the following balances immediately before the sale:
  Required:
(1) Update the conceptual analysis as a result of the disposal.
(2) Compute the gain or loss to be reported on the sale of the shares sold, and indicate whether it is a gain or a loss.
(3) Compute the amount that is reflected in Palex's general ledger account, Equity in Net Income of Subsidiary for 2006
(4) Compute the amount of the noncontrolling interest deduction to be reported in the consolidated income statement for 2006.

On 9/1/06, Palex, Which Reports on a Calendar-Year Basis, Sold