Question

Box owned all of Oval Inc. Although the Investment in Oval Inc. account had a balance...

Box owned all of Oval Inc. Although the Investment in Oval Inc. account had a balance of $834K, the subsidiary's 12K shares had an underlying book value of only $56 per share. On January 1, 2017, Oval issued 3K new shares to the public for $70 per share. How does this transaction affect the Investment in Oval Inc. account?

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Answer #1

Solution:-

Here we need to findout the Reduction in investment account .

Reduction in investment account = Total balance - Oval inc's share in book value

Where,

Oval inc's share in book value = [ [12,000 * $56 ] + [ 70 * 3,000 ]] * [ 12,000 / (12,000 + 3,000)]

= [ 672,000 + 210,000 ] * [ 0.8 ]

= 882,000 * 80%

= $705,600

Oval inc's share in book value = $705,600

Reduction in investment account = Total balance - Oval inc's share in book value

= 834,000 - 705,600

= $128,400

Reduction in investment account =  $128,400
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