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 1, 2012, Cocker issued 10,000 additional shares of common stock for $35 per share. Popper acquired 8,000 of these shares. How would this transaction affect the additional paid-in capital of the parent company?
A. Increase it by $28,700
B. Increase it by $16,800
C. $0
D. Increase it by $280,000
E. Increase it by $593,600
To determine how the transaction would affect the additional paid-in capital of the parent company, we need to calculate the total amount paid by Popper Co. to acquire the 8,000 shares of common stock issued by Cocker Co.
The total amount paid by Popper Co. to acquire the 8,000 shares can be calculated as follows:
8,000 shares * $35 per share = $280,000
Therefore, the transaction would increase the additional paid-in capital of the parent company by $280,000.
The correct answer is D. Increase it by $280,000.
To determine how this transaction would affect the additional paid-in capital of the parent company, we need to consider the following:
1. Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2009.
2. On January 1, 2012, Cocker issued 10,000 additional shares of common stock for $35 per share, and Popper acquired 8,000 of these shares.
Since Popper Co. owns 80% of the common stock of Cocker Co., it would also own 80% of any new shares issued by Cocker Co. Therefore, out of the 10,000 additional shares issued, Popper Co. would acquire 80% of 8,000 shares, which is 6,400 shares (80% * 8,000).
To calculate the effect on the additional paid-in capital of the parent company, we need to multiply the number of shares acquired by the price per share:
6,400 shares * $35 per share = $224,000.
Therefore, the transaction would increase the additional paid-in capital of the parent company by $224,000.
However, in the given answer choices, none of them match the calculated amount of $224,000. Therefore, none of the provided answer choices is correct.