Subsidiary Company S had the following stockholders equity on January
Subsidiary Company S had the following stockholders’ equity on January 1, 2014, prior to issuing 5,000 additional new shares:
Common stock ($1par), 100,000 shares issued and outstanding ........ $ 100,000
Paid-in capital in excess of par ..................... 1,900,000
Retained earnings ........................ 2,000,000
Total equity ............................ $4,000,000
Prior to the sale of additional shares, the parent owned 90,000 shares. Assume that the parent acquired the shares at a price equal to their book value. Assume that the new shares are sold for $45 each. Describe the general impact (no calculations required) the sale will have on the parent’s investment account if:
a. The parent buys less than 90% of the new shares.
b. The parent buys 90% of the new shares.
c. The parent buys all the new shares.
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