Use the following information to answer the question(s) below.

On December 31, 2013, Giant Corporation's Investment in Penguin Corporation account had a balance of $500,000. The balance consisted of 80% of Penguin's $625,000 stockholders' equity on that date. Giant owns 80% of Penguin. On January 2, 2014, Penguin increased its outstanding common stock from 15,000 to 18,000 shares.

-Assume that Penguin sold the additional 3,000 shares directly to Giant for $150,000 on January 2,2014.Giant's percentage ownership in Penguin immediately after the purchase of the additional stock is
A)66-2/3%.
B)80%.
C)83-1/3%.
D)86-2/3%

Question

Use the following information to answer the question(s) below.

On December 31, 2013, Giant Corporation's Investment in Penguin Corporation account had a balance of $500,000. The balance consisted of 80% of Penguin's $625,000 stockholders' equity on that date. Giant owns 80% of Penguin. On January 2, 2014, Penguin increased its outstanding common stock from 15,000 to 18,000 shares.

-Assume that Penguin sold the additional 3,000 shares directly to Giant for $150,000 on January 2,2014.Giant's percentage ownership in Penguin immediately after the purchase of the additional stock is
A)66-2/3%.
B)80%.
C)83-1/3%.
D)86-2/3%

Quizplus · Accepted Answer

Before the purchase of the additional shares, Giant owned 40% of Penguin (i.e., 4,000 out of 10,000 shares).

If Penguin sold 3,000 shares to Giant, then Penguin is left with only 7,000 shares.

Now, Giant owns a total of 7,000 + 3,000 = 10,000 shares (since they bought the additional 3,000 shares).

Therefore, Giant's percentage ownership in Penguin is:

(10,000 / 12,000) x 100% = 83-1/3%

So the correct answer is C) 83-1/3%.

Use the Following Information to Answer the Question(s) Below