Partridge & Sparrow Scenario

question 18

Multiple Choice

Partridge & Sparrow scenario:
Partridge purchased a 60% interest in Sparrow on January 1, 20X1, for $240,000. At the time of the purchase, Sparrow had the following stockholders' equity:
Any excess is attributable to equipment with a 10-year life. On January 1, 20X6, the retained earnings of Sparrow was $175,000.
-Refer to Partridge and Sparrow. The entire investment was sold for $300,000 on January 1, 20X6. The gain was ____.

• A) $87,000
• B) $90,000
• C) $27,000
• D) $78,000

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Definitions:

Shareholders

Individuals or entities that own shares in a corporation, representing a portion of the company's ownership.

Looting

In corporation law, the transfer of a corporation’s assets to its managers or controlling shareholders at less than fair value.

Debt-To-Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

Corporate Veil

A legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company's debts and obligations.