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) ?

Question

Business

Hailee Manning

30 April, 04:13

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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Answers (1)

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Kareem Arellano · Answer 1

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