Parr Company Owned 24,000 of the 30,000 Outstanding Common Shares

question 21

Multiple Choice

Parr Company owned 24,000 of the 30,000 outstanding common shares of Solomon Company on January 1, 2013.Parr's shares were purchased at book value when the fair values of Solomon's assets and liabilities were equal to their book values.The stockholders' equity of Solomon Company on January 1, 2013, consisted of the following: $\begin{array}{lr}\text { Common stock, } \$ 15 \text { par value } & \$ 450,000 \\\text { Other contributed capital } & 337,500 \\\text { Retained earnings } & 712,500 \\\text { Total } & \$ 1,500,000\end{array}$ Solomon Company sold 7,500 additional shares of common stock for $90 per share on January 2, 2013.If all 7,500 shares were sold to noncontrolling stockholders, the workpaper adjustment needed each time a workpaper is prepared should increase (decrease) the Investment in Solomon Company by

• A)($140,625).
• B)$140,625.
• C)($112,500).
• D)$192,000.
• E)None of these.

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Definitions:

LIFO Layers

An inventory valuation method where the last items placed in inventory are the first ones to be recorded as sold.

Profit Margin

A financial ratio that indicates the percentage of revenue that exceeds the costs of goods sold, showing how much profit is made on sales.

FIFO

Stands for "first in, first out," an inventory valuation method where the goods first added to inventory are the first ones to be sold.

Historical Cost

The original monetary value of an asset or transaction, without adjustment for inflation or other external factors over time.