On June 1, 2016, Blue Co. distributed to its common stockholders 180,000 outstan

Question

On June 1, 2016, Blue Co. distributed to its common stockholders 180,000 outstanding common shares of its investment in Red, Inc., an unrelated party. The book value on Blue’s books of Red's $1 par common stock was $1.20 per share. Immediately after the declaration, the market price of Red's stock was $3.40 per share. In its income statement for the year ended June 30, 2016, what amount should Blue report as gain before income taxes on disposal of the stock? (Do not round your intermediate calculation.)

$216,000.

$612,000.

$396,000.

$0.

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On June 1, 2016, Blue Co. distributed to its common stockholders 180,000 outstanding common shares of its investment in Red, Inc., an unrelated party. The book value on Blue’s books of Red's $1 par common stock was $1.20 per share. Immediately after the declaration, the market price of Red's stock was $3.40 per share. In its income statement for the year ended June 30, 2016, what amount should Blue report as gain before income taxes on disposal of the stock? (Do not round your intermediate calculation.)

Explanation / Answer

(3.40-1.20)*180,000 = $396,000.

[Property dividends are recorded at the fair value of the property distributed, with any gain or loss being recognized in the current period.

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