Sale of a Subsidiary in a Leveraged Buyout On 6/30/06, Pylox sold its 100% interest in its sub¬

sidiary, Sylox Company, to Newco. Sylox had been reported as a separate reportable industry seg¬

ment prior to the sale. Newco was recently formed by the top management of Sylox and a group of wealthy outside investors. The transaction is a leveraged buyout (LBO). The carrying value of Pylox’s investment in Sylox at the sale date was $7,000,000. Newco paid Sylox $10,000,000 cash

(virtually all borrowed from a financial institution). The sales agreement provided that VyXo-x. guar¬

antee payment of $2,000,000 of the Newco debt. Furthermore, if Newco’s cash flow falls below certain levels, Pylox is obligated to purchase $500,000 of preferred stock of Newco.

Required Determine how Pylox should report its $3,000,000 gain.