Problem 1:
Chapman Company purchases 80 percent of the common stock of Russell Company on January 1, 1998, when Russell has the following stockholders' equity accounts:
Common stock - 40,000 shares outstanding $100,000
Additional paid-in capital 75,000
Retained earnings 340,000
Total stockholders' equity $515,000
To acquire this interest in Russell, Chapman pays a total of $487,000 with any excess cost being allocated to goodwill.
On January 1, 2004, Russell reports a net book value of $795,000. Chapman has accrued the increase in Russell's book value through application of the equity method.
Problem 2: On January 1, 2004, Russell issues 10,000 additional shares of common stock for $15 per share. Chapman does not acquire any of this newly issued stock.
How would this transaction affect the Additional Paid-In Capital account of the parent company?
a. Has no effect on it.
b. Increases it by $16,600.
c. Decreases is by $31,200.
d. Decreases is by $48,750.