9.On January 1, 2006, Patterson Corporation purchased 24,000 of the 30,000 outst

Question

9.On January 1, 2006, Patterson Corporation purchased 24,000 of the 30,000 outstanding common shares of Stewart Company for $1,140,000. On January 1, 2010, Patterson Corporation sold 3,000 of its shares of Stewart Company on the open market for $90 per share. Stewart Company’s stockholders’ equity on January 1, 2006, and January 1, 2010, was as follows

: 1/1/061/1/10 Common stock, $10 par value$ 300,000$ 300,000 Other contributed capital300,000300,000 Retained earnings 600,000 1,050,000 $1,200,000$1,650,000

The difference between implied and book value is assigned to Stewart Company’s land. As a result of the sale, Patterson Corporation’s Investment in Stewart account should be credited for

a.$165,000.

b.$206,250.

c.$120,000.

d.$142,500.

e.None of these.

Explanation / Answer

Solution.

e.None of these

Investment for 24,000 share in 2006 = $1,140,000

Sale in 2010 (3,000 x $90 )               = $2,70,000

Balance                                             = $8,70,000

Retained earnings of 2010 = $1,050,000

Share of Patterson Corporation = ($1,050,000 / 30,000) x 21,000

                                                   = $735,000

Stewart account should be credited for = $735,000 - $8,70,000

                                                               = $135,000

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