ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What percentage of its Investment in 123 was sold by ABC?

Question

Quizplus · Accepted Answer

ABC initially purchased 35,000 shares out of 50,000, which is 70% of 123 Inc. When ABC sold 7,000 of those shares, it sold 7,000/35,000 = 20% of its initial investment in 123 Inc.

ABC Inc Purchased 35,000 Voting Shares Out of 123 Inc