Ryan Company owns 80% of Chase Company. The original balances presented for Ryan
ID: 2521549 • Letter: R
Question
Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2013 are as follows:
Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share.
13. What should the adjusted book value of Chase be after the treasury shares were purchased?
A) $400,000.
B) $480,000.
C) $320,000.
D) $336,000.
E) $464,000.
14. What is Ryan's percent ownership in Chase after the acquisition of the treasury shares (rounded)?
A) 80%.
B) 95%.
C) 64%.
D) 76%.
E) 69%.
15. When Ryan’s new percent ownership is rounded to a whole number, what adjustment is needed for Ryan's investment in Chase account?
A) $16,000 decrease.
B) $60,000 decrease.
C) $64,000 increase.
D) $64,000 decrease.
E) No adjustment is necessary.
Chase Company: Shares outstanding Book value Book value per share 50,000 $400,000 $8 Ryan Company: Shares owned of Chase Book value of investmentin Chase 40,000 $320,000Explanation / Answer
13) Adjusted book value = Book Value before purchase of treasury shares - Purchase Value of Treasury Shares
= $400,000 - (8,000 shares*$10 per share)
= $400,000 - $80,000 = $320,000
Therefore the adjusted book value of Chase is $320,000 after purchase of treasury shares. Hence the correct option is C) $320,000.
14) Total Shares of Chase after purchase of treasury shares = 50,000 shares - 8,000 shares
= 42,000 shares
Shares held by Ryan of Chase = 40,000 shares
Ryan's new percent ownership = Shares held by Ryan/Total Shares
= 40,000 shares/42,000 shares = 95% (rounded off)
Therefore Ryan's percent ownership in Chase after the acquisition of the treasury shares is 95%. Hence the correct option is B) 95%.
15) Existing Balance of Investment in chase = $320,000
Required New balance of Investment in chase = Book Value of shares after adjustment*New Percent ownership
= $320,000*95% = $304,000
Required Decrease in Investment Balance = $320,000 - $304,000 = $16,000
Thus there is a decrease of $16,000 is needed to adjust Ryan's investment in Chase account. Hence the correct option is A) $16,000 decrease.
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