7.Polk Company owned 24,000 of the 30,000 outstanding common shares of Sloan Com

Question

7.Polk Company owned 24,000 of the 30,000 outstanding common shares of Sloan Company on January 1, 2010. Polk’s shares were purchased at book value when the fair values of Sloan’s assets and liabilities were equal to their book values. The stockholders’ equity of Sloan Company on January 1, 2010, consisted of the following:

Common stock, $15 par value$ 450,000

Other contributed capital337,500

Retained earnings   712,500

Total$1,500,000

Sloan Company sold 7,500 additional shares of common stock for $90 per share on January 2, 2010. If all 7,500 shares were sold to noncontrolling stockholders, the workpaper adjustment needed each time a workpaper is prepared should increase (decrease) the Investment in Sloan Company by

a.($140,625).

b.$140,625.

c.($112,500).

d.$192,000.

e.None of these.

Explanation / Answer

Purchase value of company = 1500000/30000 * 24000

Purchase value of company = 1200000

Total Value of stock after issue of 7500 additional share = 1500000+7500*90

Total Value of stock after issue of 7500 additional share = 2175000

Value of investment after purchase = 2175000/(30000+7500) *24000

Value of investment after purchase = 1392000

Increase in investment = 1392000-1200000

Increase in investment = 192000

Answer

d.$192,000.

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