Webb Company Owns 90% of Jones Company

question 73

Multiple Choice

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2011, are as follows:

Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share.

What is the new percent ownership of Webb in Jones after the stock issuance?

• A) 75%.
• B) 90%.
• C) 80%.
• D) 64%.
• E) 60%.

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Definitions:

Supply Curve

A visual model that illustrates the association between the pricing of goods and their supply quantity.

Diversification

Reducing risk by investing in several different things, so that the possible losses are independent events.

Pooling

A strong form of diversification in which an investor takes a small share of the risk in many independent events, so the payoff has very little total overall risk.

Risk Reduction

Strategies or actions implemented to minimize the probability or impact of negative events or losses.