The balance sheet for Subco Ltd. at July 1, 2007, is shown in Exhibit 5-24 On that date, Parco Ltd. purchased 6,000 common shares of Subco for $312,500 and thereby attained significant influence over the affairs of Subco. 

Subco amortizes its tangible capital assets over 10 years straight-line. The inventory is expected to turn over six times per year and is on a FIFO cost allocation system.

On September 1, 2008, Parco purchased 3,000 more shares of Subco for $183,500. The balance sheet of Subco and the related fair values are shown in Exhibit 5-25.

Between September 1 and December 31, 2008, Subco had net income of $30,000 and paid no dividends. On January 1, 2009, Parco sold 4,000 of its shares in Subco for $300,000.

Required:

Calculate Parco’s gain or loss on disposal of the Subco shares on January 1, 2009.

Transcribed Image Text:

EXHIBIT 5-4 SUBCO LTD. Cash Inventory Tangible capital assets, net Current liabilities Long-term liabilities Common shares, 20,000 issued and outstanding Retained earnings at January 1, 2007 Net income, 2007 to date EXHIBIT 5-25 SUBCO LTD. Balance Sheet July 1, 2007 Cash Inventory Tangible capital assets, net Balance Sheet September 1, 2008 Current liabilities 51 11 21 1 Long-term liabilities Common shares, 20,000 issued and outstanding Retained earnings at January 1, 2008 Net income, 2008 to date IN Book Value $ 75,000 200,000 800,000 $1,075,000 $ 50,000 150,000 200,000 575,000 100,000 $1.075,000 Book Value $ 80,000 190,000 1.020.000 $1,290,000 $40.000 150.000 200,000 775,000 125,000 $1.290,000 Fair Value $ 75,000 250,000 750,000 50,000 150,000 Fair Value $ 80,000 200,000 1,200,000 40,000 150,000