The balance of Pal Corporation’s investment in Sag Company account at December 31, 2010, was $436,000, consisting of 80 percent of Sag’s $500,000 stockholders’ equity on that date and $36,000 goodwill. On May 1, 2011, Pal sold a 20 percent interest in Sag (one-fourth of its holdings) for $130,000. During 2011, Sag had net income of $150,000, and on July 1, 2011, Sag declared dividends of $80,000.
REQUIRED: (Solve using both the actual date of sale assumption and the beginning of the year sale assumption.)
1. Determine the gain or loss on sale of the 20 percent interest.
2. Calculate Pal’s income from Sag for 2011.
3. Determine the balance of Pal’s Investment in Sag account at December 31, 2011.