Question
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
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 stock40,000 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 Stamfords 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 companys Additional Paid-In Capital account?
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