Partridge Purchased a 60% Interest in Sparrow on January 1

question 30

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:
$$\begin{array} { l r } \text { Common stock } ( \$ 10 \text { par } ) & \$ 80,000 \\\text { Retained earnings } & \underline { 120,000 } \\\quad \text { Total stockholders' equity } & \$ 200,000\end{array}$$
Any excess is attributable to goodwill.On January 1, 2016, the retained earnings of Sparrow was $175,000.The entire investment was sold for $300,000 on January 1, 2016.At that date, Partridge had on hand inventory it had purchased from Sparrow for $50,000.Sparrow has a gross profit percentage of 40%.The gain (loss) was ____.

• A)$105,000
• B)$81,000
• C)$27,000
• D)$39,000

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Definitions:

Condition Precedent

A specific condition or event that must occur before a contract becomes effective or before a party is obligated to fulfill their part of the contract.

Ended by Agreement

A situation where a contract or arrangement is terminated through mutual consent of all parties involved.

Unforeseen Event

An unexpected occurrence that can impact agreements or plans, often referred to as a force majeure in legal contexts.

Breach of Warranty

The failure to fulfill the terms of a promise or guarantee made regarding the condition or performance of a product or service.