On June 1,2016,Blue Co

question 10

Multiple Choice

On June 1,2016,Blue Co.distributed to its common stockholders 200,000 outstanding common shares of its investment in Red,Inc. ,an unrelated party.The book value on Blue's books of Red's $1 par common stock was $2 per share.Immediately after the declaration,the market price of Red's stock was $2.50 per share.In its income statement for the year ended June 30,2016,what amount should Blue report as gain before income taxes on disposal of the stock?

• A)$ 0.
• B)$100,000.
• C)$400,000.
• D)$500,000.

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Definitions:

Hedge

An investment made to reduce the risk of adverse price movements in an asset, typically involving derivatives like options or futures.

Bushels

A unit of volume that is used to measure agricultural commodities.

Corn

A cereal plant which yields large kernels set in rows on a cob; an important crop for food, livestock feed, and ethanol production.

Hedged Delivery

A technique used in trading and finance to mitigate risk by taking opposite positions in a market to protect against price movements.