Webb Company Owns 90% of Jones Company Assume Jones Issues 20,000 New Shares of Its Common Stock

question 83

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: $\begin{array}{l}\text { Jones Company: }\\\begin{array}{lr}\text { Shares outstanding } & 100,000 \\\text { Book value of Jones } & \$ 1,200,000 \\\text { Book value per share } & \$ 12\end{array}\\\text { Webb Company: }\\\begin{array}{lr}\text { Shares owned of Jones } & 90,000 \\\text { Book value of investment } & \$ 1,080,000\end{array}\end{array}$ Assume Jones issues 20,000 new shares of its common stock for $15 per share. Of this total, Webb acquires 18,000 shares to maintain its 90% interest in Jones.
-After acquiring the additional shares, what adjustment is needed for Webb's investment in Jones account?

• A) $270,000 increase.
• B) $270,000 decrease.
• C) $27,000 increase.
• D) $27,000 decrease.
• E) No adjustment is necessary.

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Definitions:

Isocost Line

An isocost line represents all combinations of inputs (like labor and capital) that cost the same amount for a firm, illustrating budget constraints in production.

Total Cost

A combination of constant and fluctuating expenses that a company endures in the process of producing goods or services.

Isoquant

A curve that shows all combinations of inputs that produce the same level of output, used in production theory to analyze optimal input combinations.

Absolute Value

In mathematics, the distance of a number on the number line from zero, without considering direction; it's always a positive value.