On January 1, 2011, Stamford reacquires 8,000 of the outstanding shares of its own common stock for $24 per share. None of these shares belonged to Neill. How does this transaction affect the parent company’s Additional Paid-In Capital account?
a.Has no effect on it.
b.Decreases it by $55,000.
c.Decreases it by $35,000.
d.Decreases it by $28,000.
Neill Company purchases 80 percent of the common stock of Stamford Company on January 1, 2010, when Stamford has the following stockholders’ equity accounts:
Common stock—40,000 shares outstanding | $100,000 |
Additional paid-in capital | 75,000 |
Retained earnings, 1/1/10 | 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, 2011, Stamford reports retained earnings of $620,000. Neill has accrued the increase in Stamford’s retained earnings through application of the equity method.
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