Utah Company Holds 80% of the Stock of a Subsidiary

question 32

Multiple Choice

Utah Company holds 80% of the stock of a subsidiary company.The subsidiary issues 100 additional shares of stock to Utah Company at a price above book value per share.The subsidiary does not issue any additional shares at the same time.How will Utah Company record the purchase?

• A)Utah Company records a gain on sale of stock.
• B)Utah Company increases additional paid-in capital.
• C)Utah Company decreases additional paid-in capital.
• D)Utah Company assigns any excess cost over book value acquired to increase undervalued identifiable assets or goodwill as appropriate.

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Definitions:

Unilateral Mistake

A situation in contract law where only one party to a contract is mistaken about the terms or conditions contained in the contract agreement.

Contract Term

A specific duration or period during which an agreement is effective and enforceable by law.

Mistake

An error in understanding or judgment that can affect the terms or validity of a contract.

Economic Duress

involves the use of unlawful economic pressure to compel a party to act against their will in entering into a contract, impacting the agreement's voluntariness.