Question

# On January 1, 2021 M.T. Glass purchased the following investments: 1. 7,500 shares (representing 15%) of...

```On January 1, 2021 M.T. Glass purchased the following
investments:

1.  7,500 shares (representing 15%) of ZZ Company
stock for \$98,000

2.  25,000 shares (representing 40%) of AA Company
stock for \$440,000

M.T. Glass recorded the sale of some of its investments
in 2022 as follows:

1.  September 1 sold 5,000 shares of the ZZ Company
stock for \$76,000

2.  December 31 sold 3,000 shares of the AA Company
stock for \$120,000

AA Company and ZZ Company reported the following
information for the years 2021 and 2022:

AA Company      ZZ Company
Net income in 2021                 \$260,000        \$200,000
Total dividends paid in 2021       \$24,000         \$15,000
Market value at Dec 31, 2021       \$27/share       \$22/share

Net income in 2022                 \$160,000        \$225,000
Total dividends paid in 2022       \$41,000         \$5,000
Market value at Dec 31, 2022       \$24/share       \$29/share

Calculate the amount of the realized gain reported in
M.T. Glass' 2022 income statement resulting from the
sale of the AA Company stock.```

 Computation of Investment in AA Investment value at beginning 440,000 Add: Net income at 40% (260,000*40%) 104,000 Less: Dividends (24,000) Investment value at beginning of 2022 520,000 Add: Net income at 40% share (160,000*40%) 64,000 Less: Dividends (41,000) Investment value at end of 2022 543,000

Number of shares sold = 3000

Percentage of shares sold = 3000/25000 = 12%

Investment value = 543,000 * 12% = 65,160

Selling price = \$ 120,000

Realized gain = 120,000 – 65,160 = \$ 54,840

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