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    Stock Issues on Investment Account: Tuscola and Arcola

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    Arcola, Inc., acquires all 40,000 shares of Tuscola Company for 725,000. A year later, when Arcola's equity adjusted balance in its investment in Tuscola issues an additional 10,000 shares to outside investors for 25.00 per share. Which of the following best describes the effect of Tuscola's stock issues on Arcola's investment account?

    a) No effect because the shares were all sold to outside parties. b) The investment account is reduced because Arcola now owns a smaller percentage of Tuscola.
    c) The investment account is increased because Arcola's share of Tuscola's Value has increased.
    d) No effect because Arcola maintains control over Tuscola despite the new stock issue.

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    Solution Preview

    The original share of T's value 725,000
    New issuance(10000*25) ...

    Solution Summary

    Provides steps necessary to determine the correct answer.