bristlebird corporation purchased an 80% interest in underbrush corporation on j

Question

bristlebird corporation purchased an 80% interest in underbrush corporation on july1,2005 at its book value and on january 1,2006 its investment in underbrush account was 300,000, equal to its book value. underbrush's net income for 2006 was 99,000; no dividends were declared. on march 1,2006 bristlebird reduced its interest in underbrush by selling a 20% interest,one-fourth of its investment,for 84,000. if bristlebird uses a begining-of-the-year sale assumption its gain on sale and income from underbrush for 2006 will be:

a.gain on sale =5,700
income from underbrush=59,400
b. gain on sale =5,700
income from underbrush=62,700
c. gain on sale =9,000

income from underbrush=59,400
d.gain on sale=9,000
income from underbrush=62,700

Explanation / Answer

If Bristlebird uses a “beginning-of-the-year” sale assumption, its gain on sale and income from Underbrush for 2006 will be: Gain on Sale Income from Underbrush $5,700 $59,400 $5,700 $62,700 $9,000 $59,400 $9,000 $62,700 If Bristlebird uses the “actual-sale-date” sales assumption, its gain on the sale and income from Underbrush for 2006 will be: Gain on Sale Income from Underbrush a. $3,800 $59,400 b. $3,800 $62,700 c. $6,000 $59,400 d. $6,000 $62,700

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