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

Great Corporation acquired a 90% interest in SOS Corporation at its $810,000 book value on December 31, 2013. A summary of the stockholders' equity for SOS at the end of 2013 and 2014 is as follows:

$$\begin{array} { l l l }
& \underline { 12 / 31 / 13 } & \underline { 12 / 31 / 14 } \
\text { Capital stock, } \$ 10 \text { par } & \$ 600,000 & \$ 500,000 \
\text { Additional paid-in capital }& 30,000 & 30,000 \
\text { Retained Earnings } & \underline { 270,000 } & \underline { 420,000 } \
\text { Total stockholders' equity }&\underline { \$900,000}&\underline { \$1,050.000}
\end{array}$$
-If SOS sold the additional shares directly to Great,Great's Investment in SOS account after the sale would be
A)$1,350,000.
B)$1,395,000.
C)$1,425,000.
D)$1,500,000.

Question

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

Great Corporation acquired a 90% interest in SOS Corporation at its $810,000 book value on December 31, 2013. A summary of the stockholders' equity for SOS at the end of 2013 and 2014 is as follows:

$$\begin{array} { l l l } 
& \underline { 12 / 31 / 13 } & \underline { 12 / 31 / 14 } \
\text { Capital stock, } \$ 10 \text { par }  & \$ 600,000 & \$ 500,000 \
\text { Additional paid-in capital }& 30,000 & 30,000 \
\text { Retained Earnings }  & \underline { 270,000 } & \underline { 420,000 } \
\text { Total stockholders' equity }&\underline { \$900,000}&\underline { \$1,050.000}
\end{array}$$
-If SOS sold the additional shares directly to Great,Great's Investment in SOS account after the sale would be
A)$1,350,000.
B)$1,395,000.
C)$1,425,000.
D)$1,500,000.

Quizplus · Accepted Answer

Great Corporation's investment in SOS would increase by the cost of acquiring the additional shares. Initially, Great Corporation acquired a 90% interest at SOS's book value of $810,000. The decrease in capital stock from $600,000 to $500,000 indicates a buyback of shares by SOS, not a sale of additional shares. Therefore, Great's investment remains at the initial amount since there's no indication of purchasing additional shares or any transaction that would increase the investment amount. The confusion might stem from interpreting the capital stock reduction, but it's crucial to focus on the information given and the nature of transactions described.

Use the Following Information to Answer the Question(s) Below -If SOS Sold the Additional Shares Directly to Great,Great's Investment