If Pamela & Lee, Inc. paid $8,000 at book value for its 25% stake in Parkersburg Company, and in the next year total shareholders' equity for Parkersburg Company increases by 75%.
What will Pamela & Lee's interest of Parkersburg's equity be?
A) $ 7,000
B) $ 1,750
C) $ 3,000
D) $14,000

Question

Quizplus · Accepted Answer

If the investment is purchased at book value, the investment balance bears a proportional relation to the stockholders' equity of the investee company. $8,000 × 175% = $14,000