Parker owned all of Odom Inc. Although the Investment in Odom Inc. account had a
ID: 2431431 • Letter: P
Question
Parker owned all of Odom Inc. Although the Investment in Odom Inc. account had a balance of $834,000, the subsidiary's 12,000 shares had an underlying book value of only $56 per share. On January 1, 2018, Odom issued 3,000 new shares to the public for $70 per share. How does this transaction affect the Investment in Odom Inc. account?
Multiple Choice
It should be increased by $168,000.
It is not affected since the shares were sold to outside parties.
It should be decreased by $210,000.
It should be increased by $210,000.
It should be increased by $1,200.
Explanation / Answer
Correct Answer is not provided in Multiple choice..option
Total book value of shares = (56*12000)+(70*3000)= 882000 Percentage of ownership owned by Odom Inc after share issue = 12000/(12000+3000) = 80% Odom inc's share in book value = 882000*80%= 705600 Reduction in investment account = 834000-705600 = $128400 It should be decreased by $128,400.