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Exam 8: Changes in Ownership Interest

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Question 21

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On January 1, 2009, Parent Company purchased 32,000 of the 40,000 outstanding common shares of Sub Company for $1,520,000.On January 1, 2013, Parent Company sold 4,000 of its shares of Sub Company on the open market for $90 per share.Sub Company's stockholders' equity on January 1, 2009, and January 1, 2013, was as follows: The difference between implied and book value is assigned to Sub Company's land.The amount of the gain on sale of the 4,000 shares that should be recorded on the books of Parent Company is

A) $68,000.
B) $170,000.
C) $96,000.
D) $200,000.
E) None of these.

F) A) and E)
G) A) and B)

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Question 22

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P Corporation purchased an 80% interest in S Corporation on January 1, 2013, at book value for $300,000.S's net income for 2013 was $90,000 and no dividends were declared.On May 1, 2013, P reduced its interest in S by selling a 20% interest, or one-fourth of its investment for $90,000.What would be the balance in the Investment of S Corporation account on December 31, 2013?

A) $300,000.
B) $225,000.
C) $279,000.
D) $261,000.

E) C) and D)
F) A) and D)

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Question 23

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On January 1, 2013, P Corporation purchased 75% of S Corporation for $500,000.S's stockholders' equity on that date was equal to $600,000 and S had 40,000 shares issued and outstanding on that date.S Corporation sold an additional 8,000 shares of previously unissued stock on December 31, 2013. Assume S sold the 8,000 shares to outside interests, P's percent ownership would be:

When the parent company sells a portion of its investment in a subsidiary, the workpaper entry to adjust for the current year's income sold to noncontrolling stockholders includes a

On January 1 2013, Pounder Company purchased 75% of SludgeSmile Company for $500,000.SludgeSmile Company's stockholders' equity on that date was equal to $600,000 and SludgeSmile Company had 60,000 shares issued and outstanding on that date.SludgeSmile Company Corporation sold an additional 15,000 shares of previously unissued stock on December 31, 2013. Assume SludgeSmile Company sold the 15,000 shares to outside interests, Pounder Company's percent ownership would be:

Parr Company owned 24,000 of the 30,000 outstanding common shares of Solomon Company on January 1, 2013.Parr's shares were purchased at book value when the fair values of Solomon's assets and liabilities were equal to their book values.The stockholders' equity of Solomon Company on January 1, 2013, consisted of the following: $\begin{array}{lr}\text { Common stock, } \$ 15 \text { par value } & \$ 450,000 \\\text { Other contributed capital } & 337,500 \\\text { Retained earnings } & 712,500 \\\text { Total } & \$ 1,500,000\end{array}$ Solomon Company sold 7,500 additional shares of common stock for $90 per share on January 2, 2013.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 Solomon Company by

Use the following information for Questions 19-21. On January 1, 2009, Pharma Company purchased 16,000 of the 20,000 outstanding common shares of Sludge Company for $760,000.On January 1, 2013, Pharma Company sold 2,000 of its shares of Sludge Company on the open market for $90 per share.Sludge Company's stockholders' equity on January 1, 2009, and January 1, 2013, was as follows: 1/1/09 1/1/13 The difference between implied and book value is assigned to Sludge Company's land. -As a result of the sale, Pharma Company's Investment in Sludge account should be credited for