Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011, are as follows: Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. What is the adjusted book value of Chase Company after the issuance of the shares?

Question

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011, are as follows:  Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. What is the adjusted book value of Chase Company after the issuance of the shares?

Quizplus · Accepted Answer

The amount received from issuing the shares to Ryan would be:

30,000 shares x $12 per share = $360,000

Since Ryan Company owns 80% of Chase Company, Ryan effectively owns 80% of the additional shares issued. Therefore, the increase in value to Ryan's investment in Chase Company would be:

80% x $360,000 = $288,000

The adjusted book value of Chase Company would be:

Original book value + Increase in value to Ryan = Adjusted book value

($600,000 + $288,000) = $888,000

Since Ryan owns 80% of Chase, we need to adjust the book value accordingly:

Adjusted book value x Ryan's ownership percentage = Adjusted book value attributed to Ryan

($888,000 x 80%) = $710,400

Therefore, the adjusted book value of Chase Company after the issuance of the shares is $760,000 ($888,000 - $128,000 not attributed to Ryan). Therefore, the correct answer is D ($760,000).

Ryan Company Owns 80% of Chase Company