Problem

Posada Company acquired 7,000 of the 10,000 outstanding shares of Sabathia Company on January 1, 2013, for $840,000. The subsidiary's total fair value was assessed at $1,200,000 although its book value on that date was $1,130,000. The $70,000 fair value in excess of Sabathia's book value was assigned to a patent with a 5-year remaining life.

On January 1, 2015, Posada reported a $1,085,000 equity method balance in the Investment in Sabathia Company account. On October 1, 2015, Posada sells 1,000 shares of the investment for $191,000. During 2015, Sabathia reported net income of $120,000 and declared dividends of $40,000. These amounts are assumed to have occurred evenly throughout the year.

Question A: How should Posada report the 2015 income that accrued to the 1,000 shares prior to their sale?

Question B: What is the effect on Posada's financial statements from this sale of 1,000 shares?