Parker owned all of Odom Inc. Although the Investment in Odom Inc. account had a...
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Parker owned all of Odom Inc. Although the Investment in Odom Inc. account had a balance of $834,000, the subsidiary's 12,000 shares had an underlying book value of only $56 per share. On January 1, 2013, Odom issued 3,000 new shares to the public for $70 per share. How does this transaction affect the Investment in Odom Inc. account?
A) It should be decreased by $141,120.
B) It should be increased by $176,400.
C) It should be increased by $48,000.
D) It should be decreased by $128,400.
E) It is not affected since the shares were sold to outside parties.
BV = $56 X 12,000 + $70 X 3,000 = $882,000 X .80 = $705,600 Why do we multiply by 80%? Is it because parent (Parker) now have a total basis of 15k shares and of the 15k, 3k are being sold? I think I just answered my own question.
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