On January 1, 2016, Paris Ltd.paid $600,000 for its 75% interest in the Scott Company when Scott had total equity of $550,000.Any excess of cost over book value was attributed to equipment with a 10-year life.On January 1, 2018, Scott Company had the following stockholders' equity: ?

$\begin{array}{lr}
\text { Common stock, } \$ 10 \text { par } & \$ 100,000 \
\text { Other paid-in capital } & 200,000 \
\text { Retained earnings } & 350,000
\end{array}$
On January 2, 2018, Scott Company sold 2,500 additional shares of stock for $90 each in a private offering to non-controlling shareholders.As a result of this sale, which of the following changes would appear in the 2018 consolidated statements?
A)$7,500 gain
B)$37,500 loss
C)$7,500 increase in controlling paid-in capital
D)$37,500 decrease in controlling paid-in capital

Question

On January 1, 2016, Paris Ltd.paid $600,000 for its 75% interest in the Scott Company when Scott had total equity of $550,000.Any excess of cost over book value was attributed to equipment with a 10-year life.On January 1, 2018, Scott Company had the following stockholders' equity: ?

$\begin{array}{lr}
\text { Common stock, } \$ 10 \text { par } & \$ 100,000 \
\text { Other paid-in capital } & 200,000 \
\text { Retained earnings } & 350,000
\end{array}$
 On January 2, 2018, Scott Company sold 2,500 additional shares of stock for $90 each in a private offering to non-controlling shareholders.As a result of this sale, which of the following changes would appear in the 2018 consolidated statements?
A)$7,500 gain
B)$37,500 loss
C)$7,500 increase in controlling paid-in capital
D)$37,500 decrease in controlling paid-in capital

Quizplus · Accepted Answer

The sale of additional shares to non-controlling shareholders will not affect consolidated net income, so options A and B can be eliminated. 
The sale of shares will increase the total amount of paid-in capital of Scott Company, which means an increase in the controlling interest's proportionate share of paid-in capital. 
Therefore, option C is the correct answer. Option D is incorrect because the controlling interest's paid-in capital would increase rather than decrease.

On January 1, 2016, Paris Ltd On January 2, 2018, Scott Company Sold 2,500 Additional Shares