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28 July, 16:36

On June 27, 2021, Cara Van Travel distributed to its common shareholders 510,000 outstanding common shares of its investment in Constance Noring Pillows. The book value on Van's books of Noring's $1 par common stock was $3.10 per share. Immediately after the distribution, the market price of Noring's stock was $3.60 per share. In its income statement for the year ended June 30, 2023, what amount should Noring report as gain on disposal of the stock (ignore taxes) ?

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  1. 28 July, 19:45
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    The correct answer is $255,000.

    Explanation:

    According to the scenario, the given data are as follows:

    Total outstanding shares = 510,000

    Shares value before = $3.10

    Shares value after deal = $3.60

    So, we can calculate the amount of gain on disposal by using following formula:

    Gain amount on disposal = Total number of shares * Difference in share value

    By putting the value, we get

    = 510,000 * ($3.60 - $3.10)

    = 510,000 * $0.50

    = $255,000
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