Reference no: EM132483194
Point 1: Parent Ltd. held 80% of the outstanding ordinary shares of Son Corp. as at December 31, Year 12. In order to establish a closer relationship with Nonaffiliated Corporation, a major supplier to both Parent and Son, all three companies agreed that Nonaffiliated would take an equity position in Son. Accordingly, for a cash payment of $14.90 per share, Son issued 21,000 additional ordinary shares to Nonaffiliated on December 31, Year 12. This was the last transaction that occurred on this date.
Statements of financial position for the two companies just prior to this transaction were as follows:
PARENT LTD.
STATEMENT OF FINANCIAL POSITION at December 31, Year 12
Buildings and equipment (net)- 780,000
Investment in Son--- 486,080
Inventory-- 184,000
Accounts receivable-- 107,000
Cash-- 62,500
$1,619,580
Ordinary shares--- $480,000
Retained earnings-- 728,000
Mortgage payable . 259,000
Accounts payable . 152,580
$1,619,580
SON CORP.
STATEMENT OF FINANCIAL POSITION
at December 31, Year 12
Buildings and equipment (net) $576,000
Inventory 228,000
Accounts receivable 139,300
Cash 65,200
$1,008,500
Ordinary shares (Note) $250,000
Retained earnings 332,600
Accrued liabilities 88,800
Accounts payable 337,100
$1,008,500
Note: 49,000 ordinary shares outstanding on December 31, Year 12.
Additional Information
- Parent has used the equity method of accounting for its investment in Son since it acquired its 80% interest in Son in Year 2. At that time, the acquisition differential was entirely allocated to inventory and patent, which still exists but is not recorded on Son's separate-entity books.
- There were no unrealized intercompany asset profits as at December 31, Year 12.
Required:
Question 1: Calculate Parent's ownership of Son changes after additional shares were issued
Question 2: Calculate if Parent's investment in Son has gained or lost after additional shares were issued