Problem

The stockholders’ equities of Pod Corporation and its 80 percent-owned subsidiary, Sod Cor...

The stockholders’ equities of Pod Corporation and its 80 percent-owned subsidiary, Sod Corporation, on December 31, 2011, appear as follows (in thousands):

 

Pod

Sod

Common stock, $10 par

$5,000

$2,200

Retained earnings

2,000

1,000

Total

$7,000

$3,200

Pod’s Investment in Sod account on this date is equal to its underlying book value. On January 1, 2012, Sod issues 30,000 previously unissued common shares for $20 per share.

REQUIRED

1. If Pod purchases the 30,000 shares directly from Sod, what is Pod’s percentage ownership in Sod after the new shares are acquired?


2. If Sod sells the 30,000 previously unissued common shares to the public, what is Pod’s percentage ownership in Sod after the new issuance?


3. If Sod sells the 30,000 shares to the public, prepare the journal entry on Pod’s books to account for the effect of the issuance on its Investment in Sod account assuming that no gain or loss is recognized.

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Solutions For Problems in Chapter 8