These questions are based on the following information and should be viewed as independent situations. Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2009, when Cocker had the following stockholders' equity accounts.
Common Stock- 40,000 shares outstanding= $140,000
Additional paid-in capital = $105,000
Retained earnings = $476,000
Total stockholders' equity = $721,000
To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2012. On January 1, 2012 Cocker reported a net book value of $1,113,000 before the following transactions were conducted. Popper uses the equity method to account for its investment in Cocker, thereby reflecting the change in book value of Cocker.
On January 21, 2012, Cocker issued 10,000 additional shares of common stock for $21 per share. Popper did not acquire any of this newly issued stock. How would this transaction affect the additional paid-incapital of the parent company?
A. $0
B. Decrease it by $23,240
C. Decrease it by $68,250
D. Decrease it by $45,060
E. Decrease it by $43,680
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To determine how the transaction would affect the additional paid-in capital of the parent company, we need to calculate the additional paid-in capital before and after the transaction.
Before the transaction:
The additional paid-in capital was $105,000 as given in the information.
After the transaction:
Cocker issued 10,000 additional shares of common stock for $21 per share.
So, the additional paid-in capital after the transaction can be calculated as follows:
Additional Paid-in Capital after the transaction = Additional shares issued * Issue price per share.
Additional shares issued = 10,000 shares
Issue price per share = $21
Additional Paid-in Capital after the transaction = 10,000 * $21 = $210,000
Now, let's compare the additional paid-in capital before and after the transaction to determine the change:
Change in Additional Paid-in Capital = Additional Paid-in Capital after the transaction - Additional Paid-in Capital before the transaction
Change in Additional Paid-in Capital = $210,000 - $105,000
Change in Additional Paid-in Capital = $105,000
Therefore, the transaction would decrease the additional paid-in capital of the parent company by $105,000.
The answer would be D. Decrease it by $105,000.