Whine Purchased 80% of the Outstanding Voting Shares of Dine

question 59

Multiple Choice

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares) : $\begin{array}{|l|r|r|}\hline & \text { WHINE } & \text { DINE } \\\hline \text { Cash } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Receivable } & \$ 450,000 & \$ 300,000 \\\hline \text { Inventory } & \$ 500,000 & \$ 100,000 \\\hline \text { Investment in Dine Inc. } & \$ 500,000 & \\\hline \text { Land } & \$ 140,000 & \\\hline \text { Equipment (net) } & \$ 460,000 & \$ 200,000 \\\hline \text { Total Assets } & \mathbf{\$ 2 . 3 0 0 , 0 0 0} & \mathbf{\$ 8 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 900,000 & \$ 200,000 \\\hline \text { Bonds Payable } & \$ 500,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 400,000 & \$ 300,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 , 3 0 0 , 0 0 0} & \$ \mathbf{8 0 0 , 0 0 0} \\\hline \end{array}$ Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
What would be the gain or loss arising from Dine's share issue to Chompster?

• A) A loss of $4,000.
• B) A loss of $2,400.
• C) A gain of $2,400.
• D) A gain of $4,000.

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