Question
Pearl Corporation paid $150,000 on January 1, 2013 for a 25% interest in Sandlin Inc. On January 1, 2013, the book value of Sandlin's stockholders'
Pearl Corporation paid $150,000 on January 1, 2013 for a 25% interest in Sandlin Inc. On January 1, 2013, the book value of Sandlin's stockholders' equity consisted of $200,000 of common stock and $200,000 of retained earnings. All the excess purchase cost over book value acquired was attributable to a patent with an estimated life of 5 years. During 2013 and 2014, Sandlin paid $3,000 of dividends each quarter and reported net income of $60,000 for 2013 and $80,000 for 2014. Pearl used the equity method.
If Pearl sold a 10% interest in Sandlin Inc. for $100,000 on January 1, 2015 and gave up influence on Sandlin Inc., what was the gain or loss from this transaction for Pearl?
A) $36,400
B) $63,600
C) $100,000
D) $500,000
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