Partridge Purchased a 60% Interest in Sparrow on January 1

question 21

Multiple Choice

Partridge purchased a 60% interest in Sparrow on January 1, 2016, for $240,000.At the time of the purchase, Sparrow had the following stockholders' equity:
$$\begin{array} { l r } \text { Common stock ( } \$ 10 \text { par) } & \$ 80,000 \\\text { Retained earnings } & \underline { 120,000 } \\\text { Total stockholders' equity } & \$ 200,000\end{array}$$
Any excess is attributable to equipment with a 10-year life.On January 1, 2016, the retained earnings of Sparrow was $175,000.The entire investment was sold for $300,000 on January 1, 2016.The gain was ____.

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

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