Question

Neill Company purchases 80 percent of the common stock of Stamford Company on January 1, 2013, when Stamford has the following stockholders’ equity accounts:
Common stock—40,000 shares outstanding....................$100,000
Additional paid-in capital................................................ 75,000
Retained earnings, 1/1/13................................................ 540,000
Total stockholders’ equity...............................................$715,000
To acquire this interest in Stamford, Neill pays a total of $592,000. The acquisition-date fair value of the 20 percent noncontrolling interest was $148,000. Any excess fair value was allocated to goodwill, which has not experienced any impairment. On January 1, 2014, Stamford reports retained earnings of $620,000. Neill has accrued the increase in Stamford’s retained earnings through application of the equity method. View the following problems as independent situations:
On January 1, 2014, Stamford issues 10,000 additional shares of common stock for $15 per share. Neill does not acquire any of this newly issued stock. How does this transaction affect the parent company’s Additional Paid-In Capital account?
a. Has no effect on it.
b. Increases it by $44,000.
c. Decreases it by $35,200.
d. Decreases it by $55,000.



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  • CreatedJanuary 08, 2015
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