On January 1, 2016, Paul, Inc.acquired a 90% interest in Stephan Company.The $45,000 excess of purchase price (parent's share only) was attributable to goodwill.On January 1, 2018, Stephan Company had the following stockholders' equity: ?
$\begin{array}{lr}
\text { Common stock, } \$ 10 \text { par } & \$ 100,000 \
\text { Other paid-in capital } & 200,000 \
\text { Retained earnings } & 300,000
\end{array}$
On January 2, 2018, Stephan sold 2,000 additional shares in a private offering.Stephan issued the new shares for $80 per share; Paul, Inc.purchased all the shares.What is the journal entry that Paul will prepare to record this investment?
?
a.
$\begin{array}{lcr}
\text { Investment in Stephan } & 160,000 & \
\quad \text { Cash } & & 160,000 \\end{array}$
b.$\begin{array}{lcr}\text { Investment in Stephan } & 156,692 & \
\quad \text { Paid-in Capital in Excess of Par-Paul } & & 3,308 \
\text { Cash } & & 160,000
\end{array}$
c.
$\begin{array}{lrc}
\text { Investment in Stephan } & 157,527 & \
\text { Paid-in Capital in Excess of Par-Paul } & 2,473 & \
\quad \text { Cash } & & 160,000 \\end{array}$
d.
$\begin{array}{lrc}\text { Investment in Stephan } & 160,000 & \
\quad \text { Paid-in Capital in Excess of Par-Paul } & & 2,829 \
\quad \text { Cash } & & 157,171
\end{array}$

Question

On January 1, 2016, Paul, Inc.acquired a 90% interest in Stephan Company.The $45,000 excess of purchase price (parent's share only) was attributable to goodwill.On January 1, 2018, Stephan Company had the following stockholders' equity: ?
$\begin{array}{lr}
\text { Common stock, } \$ 10 \text { par } & \$ 100,000 \
\text { Other paid-in capital } & 200,000 \
\text { Retained earnings } & 300,000
\end{array}$
 On January 2, 2018, Stephan sold 2,000 additional shares in a private offering.Stephan issued the new shares for $80 per share; Paul, Inc.purchased all the shares.What is the journal entry that Paul will prepare to record this investment?
?
a.
$\begin{array}{lcr}
\text { Investment in Stephan } & 160,000 & \
\quad \text { Cash } & & 160,000 \\end{array}$
b.$\begin{array}{lcr}\text { Investment in Stephan } & 156,692 & \
\quad \text { Paid-in Capital in Excess of Par-Paul } & & 3,308 \
\text { Cash } & & 160,000
\end{array}$
c.
$\begin{array}{lrc}
\text { Investment in Stephan } & 157,527 & \
\text { Paid-in Capital in Excess of Par-Paul } & 2,473 & \
\quad \text { Cash } & & 160,000 \\end{array}$
d.
$\begin{array}{lrc}\text { Investment in Stephan } & 160,000 & \
\quad \text { Paid-in Capital in Excess of Par-Paul } & & 2,829 \
\quad \text { Cash } & & 157,171
\end{array}$

Quizplus · Accepted Answer

Since Paul, Inc. already owns a 90% interest in Stephan Company, any additional investment would be considered a purchase of additional shares. The purchase of 2,000 shares at $80 per share results in total consideration of $160,000. The par value of the shares is not given, but it can be assumed to be lower than $80 since the company is issuing shares at a premium. Therefore, the excess amount paid over the par value represents additional paid-in capital. The entry to record the investment would be:

Investment in Stephan: $157,527
Paid-in Capital in Excess of Par-Paul: $2,473
Cash: $160,000

On January 1, 2016, Paul, Inc On January 2, 2018, Stephan Sold 2,000 Additional Shares in Stephan