Question

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 4,000 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
Dividends paid to M.T. Glass in 2021      $24,000             $15,000
Market value at Dec 31, 2021              $27 per share       $22 per share

Net income in 2022                        $160,000            $225,000
Dividends paid to M.T. Glass in 2022      $41,000             $5,000
Market value at Dec 31, 2022              $24 per share       $28 per 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.

Answer 1

Solution:

Gain On Sale of Investment = $33120

Explanation:

Investment In AA Company
Particulars	Amount ($)	Particulars	Amount ($)
25000 Shares	440000
260000*40%	104000	Dividend Paid	24000
12/31/2021	520000
160000*40%	64000	Dividend Paid	41000
	543000

Particulars	Amount ($)
Cost of Investment Sold [543000 x 16%*]	86880
Selling Price Of Investment	120000
Gain On Sale Of Investment	33120

*Percentage of Investment in AA Company sold = 4000/25000 = 16%