Question

Parent Company owns 90% of ABC Company's 100,000 shares. ABC issues 150,000 new shares to the public for $1 cash per share and Parent Co. acquires none of the shares. Non-controlling Interest recorded on Parent's consolidated balance sheet just prior to this transaction was 17,000. The value of ABC's net assets recorded on Parent's consolidated balance sheet, updated for AAP amortization to the date of the stock issuance, was 457,000 before the stock issuance. The fair value of Parent's retained investment in ABC was 280,000. What is the amount of the gain or loss that must be recorded by Parent on the date of the stock issuance

Answer 1

115480 ( as gain )

Step-by-step explanation:

New share issued : 150,000 at $1 per share

Fair value of parent's retained investment = 280,000

Hence For a $457,000 worth of asset the investment value = 280,000

Also for ABC's 100,000 shares 90% was acquired by Parent company

= 90,000 shares

For the total number of shares offered = 150,000 + 100,000 = 250,000

The percentage of shares owned by Parent company

= 90,000 / 250,000 * 100

= 36%

Next determine shares in net assets

= 457,000 * 36% = $164520

Finally the amount of gain or loss recorded by parent company

280,000 - 164520 = 115,480 ( gain )