Sadie Corporation's stockholders' equity at December 31, 2010 included the following: Pilga Corporation purchased a 30% interest in Sadie's common stock from other shareholders on January 1, 2011 for $5,800,000.What was the book value of Pilga's investment in Sadie on January 1, 2011?

Question

Sadie Corporation's stockholders' equity at December 31, 2010 included the following:  Pilga Corporation purchased a 30% interest in Sadie's common stock from other shareholders on January 1, 2011 for $5,800,000.What was the book value of Pilga's investment in Sadie on January 1, 2011?

Quizplus · Accepted Answer

To calculate the book value of Pilga's investment in Sadie, we need to use the proportionate amount of the equity method.
Pilga Corporation purchased a 30% interest in Sadie's common stock, which means that Pilga owns 30% of each of the assets and liabilities shown in Sadie's balance sheet. Thus, we can find the book value of Pilga's investment by multiplying the total book value of Sadie's common stock by 30%:
$18,000,000 (book value of Sadie's common stock) x 30% = $5,400,000 (book value of Pilga's investment). Therefore, the correct answer is A) $5,400,000.

Sadie Corporation's Stockholders' Equity at December 31, 2010 Included the Following