Horizons Inc. has agreed to sell an investment in a subsidiary that has been accounted for on the equity method of accounting to a minority stockholder in exchange for the stockholder’s share in Horizons. Since the fair value of the investment exceeds its book value, Horizons CEO is considering recognizing a gain on the exchange. However, the new CFO at Horizons is recommending to the board of directors that the excess from the exchange be accounted as a credit to equity. Horizons turns to you for advice!

a) Provide responses for each independent case on the appropriate accounting treatment.

b) Support your responses with code sections from the FASB Accounting Standards Codification (ASC).