Items 1 through 3 are based on the following:
Grant, Inc. acquired 30% of South Co.’s voting stock for $200,000 on January 2, 2005. Grant’s 30% interest in South gave Grant the ability to exercise significant influence over South’s operating and financial policies. During 2005, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six months ended June 30, 2006, and $200,000 for the year ended December 31, 2006. On July 1, 2006, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, 2006.
Before income taxes, what amount should Grant include in its 2005 income statement as a result of the investment?
- $15,000
- $24,000
- $50,000
- $80,000
In Grant’s December 31, 2005 balance sheet, what should be the carrying amount of this investment?
- $200,000
- $209,000
- $224,000
- $230,000
In its 2006 income statement, what amount should Grant report as gain from the sale of half of its investment?
- $24,500
- $30,500
- $35,000
- $45,500