Investment account of Ames interest in Nestlum
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Ames owns 100% of Nestlum, Inc. Although the Investment in Nestlum account has a balance of $596,000, the subsidiary's 12,000 shares have an underlying book value of only $40 per share. On Jan 1, 2009, Nestlum issues 3,000 new shares to the public for $50 per share. How does this transaction affect the Investment in Nestlum account?
a) It is not affected because the shares were sold to outside parties.
b) It should be increased by $24,000
c) It should be decreased by $119,200
d) It should be increased by $30,000.
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Solution Summary
Investment accounting for Ames interest in Nestlum is given. How the transactions affect the investment in Nestlum accounts is discovered.
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Answer
b) It should be increased by $24,000
Computation
BV = 12,000 shares x $40 = $480,000
Excess = ...
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