Question

Albuquerque, Inc., acquired 24,000 shares of Marmon Company several years ago for $810,000. At the acquisition date, Marmon reported a book value of $880,000, and Albuquerque assessed the fair value of the noncontrolling interest at $270,000. Any excess of acquisition-date fair value over book value was assigned to broadcast licenses with indefinite lives. Since the acquisition date and until this point, Marmon has issued no additional shares. No impairment has been recognized for the broadcast licenses.

At the present time, Marmon reports $980,000 as total stockholders’ equity, which is broken down as follows:

Common stock ($10 par value)	$	320,000
Additional paid-in capital		440,000
Retained earnings		220,000
Total	$	980,000

View the following as independent situations:

Marmon sells 16,000 and 4,000 shares of previously unissued common stock to the public for $44 and $23 per share. Albuquerque purchased none of this stock. What journal entry should Albuquerque make to recognize the impact of this stock transaction? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations.)

Answer 1

a)

Prior to the issuance of the new share, Albuquerque owns an 75% interest in Marmon (24000 shares out of 32,000 shares). The adjusted acquisition- date fair value is $1,180,000 ($810,000+$270,000+$100,000). After the stock issue, the adjusted acquisition- date fair value of the subsidiary will increase by $7,04,000(the price of the stock ) to $1,884,000. Albuquerque ownership, however, will only be 50%    ( 24000/ 48000). The investment’s equity method balance before stock issue is $885,000(810000+[ $100000*75%]). The book value underlying Albuquerque investment is now $942,000 (50% of $1,884,000) so that a $57000 increase is recorded by the parent.

date	Accounts & explanation	Debit ($)	Credit($)
	Investment in Marmon	57000
	To  Additional in capital		57000

B.

The adjusted acquisition- date fair value is 1180,000 (see above) prior to the issuance of the new share. The 4000 additional shares increase subsidiary’s total value by $92000(the price of the stock)to $1,272,000. Albuquerque ownership decreases to 2/3 (24000shares out of requires a $36000) for fair value equivalency of 848,000.reducing the $1,272,000 to 848,000 requires $32000 decrease to the parent’s APIC

date	Accounts & explanation	Debit ($)	Credit($)
	Additional paid in capital	32000
	To investment in Marmon		32000