On June 27, 2010, Brite Co. distributed to its common stockholders 100,000 outst

Question

On June 27, 2010, Brite Co. distributed to its common stockholders 100,000 outstanding 100,000 outstanding common shares of its investment in Quik, Inc., an unrelated party. The carrying amount on Brite’s books of Quick’s $1 par common stock was $2 per share. Immediate after the distribution, the market price of Quik’s stock was $2.50 per share. In its income statement for the year ended June 30, 2010, what amount should Brite report as gain before income taxes on disposal of the stock?
a. $250,000
b. $200,000
c. $ 50,000
d. $0

Explanation / Answer

Fair value of shares distributed (100,000 * $2.50)         $250,000

Carrying amount of shares distributed                            (200,000)

Pre-Tax Gain on the shares distributed                          50,000

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