Neill Company purchases 80 percent of the common stock of Stamford Company on January 1, 2017,...
Neill Company purchases 80 percent of the common stock of Stamford Company on January 1, 2017, when Stamford has the following stockholders’ equity accounts:
| Common stock—40,000 shares outstanding | $ | 100,000 | ||
| Additional paid-in capital | 75,000 | |||
| Retained earnings, 1/1/17 | 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, 2018, Stamford reports retained earnings of $620,000. Neill has accrued the increase in Stamford’s retained earnings through application of the equity method.
On January 1, 2018, 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?
Homework Answers
How does this transaction affect the parent company’s Additional Paid-In Capital account?
| Neill Company | ||||||
| Adjusted acquisition-date fair value ($820,000 – $192,000) | 628000 | |||||
| New parent ownership (32,000 shs. ÷ 32,000 shs.) | 100% | |||||
| Fair value equivalency of parent's ownership | 628000 | |||||
| Parent's investment account ($592,000 + [80% × 80,000]) | 656000 | |||||
| Required adjustment—decrease | -28000 | |||||
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