On January 1, 2009, Pine Corporation purchased 24,000 of the 30,000 outstanding common shares of Summit Company for $1,140,000.On January 1, 2013, Pine Corporation sold 3,000 of its shares of Summit Company on the open market for $90 per share.Summit Company's stockholders' equity on January 1, 2009, and January 1, 2013, was as follows: The difference between implied and book value is assigned to Summit Company's land.As a result of the sale, Pine Corporation's Investment in Summit account should be credited for
A)$165,000.
B)$206,250.
C)$120,000.
D)$142,500.
E)None of these.

Question

On January 1, 2009, Pine Corporation purchased 24,000 of the 30,000 outstanding common shares of Summit Company for $1,140,000.On January 1, 2013, Pine Corporation sold 3,000 of its shares of Summit Company on the open market for $90 per share.Summit Company's stockholders' equity on January 1, 2009, and January 1, 2013, was as follows:  The difference between implied and book value is assigned to Summit Company's land.As a result of the sale, Pine Corporation's Investment in Summit account should be credited for
A)$165,000. 
B)$206,250. 
C)$120,000. 
D)$142,500. 
E)None of these.

Quizplus · Accepted Answer

The implied value of the 21,000 shares after the purchase in 2009 is $1,260,000 (42 x $30,000). The book value of those shares is $1,452,000 ($1,920,000/30,000 x 24,000). The difference between those two values is $192,000. This amount should be assigned to Summit Company's land. 
After selling 3,000 shares at $90 per share, Pine Corporation has received $270,000 (3,000 x $90). 
The Investment in Summit account should be credited for the following amount:
$1,140,000 (original purchase price) - $192,000 (portion of the purchase price assigned to land) - $67,500 (selling price of 3,000 shares) = $880,500
So Pine Corporation's Investment in Summit account should be credited for $142,500 ($880,500 - $738,000). Therefore, the correct answer is option D.

On January 1, 2009, Pine Corporation Purchased 24,000 of the 30,000