At December 31, 2013, the stockholders' equity of Pearson Corporation and its 80%-owned subsidiary, Trompeter Corporation, are as follows:
Pearson's Investment in Trompeter is equal to 80 percent of Trompeter's book value. Trompeter Corporation issued 400 additional shares of common stock directly to Pearson on January 1, 2014 at $10 per share.
Required:
1. Compute the balance in Pearson's Investment in Trompeter account on January 1, 2014 after the new investment is recorded.
2. Determine the increase or decrease in goodwill from Pearson's new investment in the 400 Trompeter shares. Use four decimal places for the ownership percentage. Assume the fair value and book value of Trompeter's assets and liabilities are equal.

Question

At December 31, 2013, the stockholders' equity of Pearson Corporation and its 80%-owned subsidiary, Trompeter Corporation, are as follows:
  Pearson's Investment in Trompeter is equal to 80 percent of Trompeter's book value. Trompeter Corporation issued 400 additional shares of common stock directly to Pearson on January 1, 2014 at $10 per share.
Required:
1. Compute the balance in Pearson's Investment in Trompeter account on January 1, 2014 after the new investment is recorded.
2. Determine the increase or decrease in goodwill from Pearson's new investment in the 400 Trompeter shares. Use four decimal places for the ownership percentage. Assume the fair value and book value of Trompeter's assets and liabilities are equal.

Quizplus · Accepted Answer

The Answer of At December 31, 2013, the stockholders' equity of Pearson Corporation and its 80%-owned subsidiary, Trompeter Corporation, are as follows:
  Pearson's Investment in Trompeter is equal to 80 percent of Trompeter's book value. Trompeter Corporation issued 400 additional shares of common stock directly to Pearson on January 1, 2014 at $10 per share.
Required:
1. Compute the balance in Pearson's Investment in Trompeter account on January 1, 2014 after the new investment is recorded.
2. Determine the increase or decrease in goodwill from Pearson's new investment in the 400 Trompeter shares. Use four decimal places for the ownership percentage. Assume the fair value and book value of Trompeter's assets and liabilities are equal.

At December 31, 2013, the Stockholders' Equity of Pearson Corporation