On January 1, 2018, Reese Witherspoon Co. acquired 8,400 of the outstanding 10,000 shares of Elle Woods Inc. by issuing its own shares with a market value of $400,000. On June 30, 2019, Elle Woods issued an additional 2,500 shares for cash consideration of $60 per share, none of which were acquired by Reese Witherspoon. Immediately before the issue, the shareholders' equity of Elle Woods amounted to $500,000 and the unamortized acquisition differential was $65,000. Reese Witherspoon uses the equity method to record its investment in Elle Woods. Round your numbers to 3 decimal places, when necessary.

Required:

1. What is Reese Witherspoon’s ownership interest in Elle Woods prior to the new issue?

2. What is Reese Witherspoon’s ownership interest in Elle Woods after the new issue?

3. What percentage of its Investment in Elle Woods Inc. was “sold” (lost) by Reese Witherspoon Co.?

4. What would be the balance in the investment in Elle Woods account immediately before the new issue?

5. What gain or loss will appear in the consolidated financial statements of Reese Witherspoon and its subsidiary Elle Woods as a result of the new issue?

Answer rating: 100% (QA)

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