Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2013, are as follows: $\begin{array}{lr}
\text { Jones Company: } & \
\text { Shares outstanding } & 100,000 \
\text { Book value of Jones } & \$ 1,200,000 \
\text { Book value per share } & \$ 12 \
\text { Webb Company: } & \
\text { Shares owned of Jones } &90,000 \
\text { Book value of investment } & \$ 1,080,000
\end{array}$ Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. What is the new percent ownership of Webb in Jones after the stock issuance?
A)75%.
B)90%.
C)80%.
D)64%.
E)60%.

Question

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2013, are as follows: $\begin{array}{lr}
\text { Jones Company: } & \
\text { Shares outstanding } & 100,000 \
\text { Book value of Jones } & \$ 1,200,000 \
\text { Book value per share } & \$ 12 \
\text { Webb Company: } &  \
\text { Shares owned of Jones } &90,000 \
\text { Book value of investment } & \$ 1,080,000
\end{array}$ Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. What is the new percent ownership of Webb in Jones after the stock issuance?
A)75%.
B)90%.
C)80%.
D)64%.
E)60%.

Quizplus · Accepted Answer

Webb's ownership percentage is calculated as the number of shares owned by Webb divided by the total number of shares outstanding. Before the stock issuance, Webb owned 90,000 shares out of 100,000 shares outstanding, giving it a 90% ownership percentage. After the stock issuance, Jones has 120,000 shares outstanding (100,000 + 20,000). Webb still owns 90,000 shares, so its ownership percentage is now 90,000 / 120,000 = 75%.

Webb Company Owns 90% of Jones Company Jones Sells 20,000 Shares of Previously Unissued Shares of Its