Problem:
Chapman Company purchases 80 percent of the common stock of Russell Company on January 1, 1998 when Russell has the following stockholders' equity accounts:
Common stock - 40,000 shares outstanding..........$100,000
Additional paid-in capital.........................................75,000
Retained earnings.................................................340,000
Total stockholders' equity................................. $515,000
To acquire this interest in Russell, Cahpman pays a total of $487,000 with any excess cost being allocated to goodwill.
On January 1, 2004, Russell reports a net book value of $795,000. Chapman has accrued the increase in Russell's book value through application of the equity method.
On January 1, 2004, Russell issues 10,000 additional shares of common stock for $15 per share. Chapman does not acquire any of this newly issued stock. How would this transaction affect the Additional Paid-In Capital account of the parent company?
a. Has no effect on it.
b. Increases it by $ 16,600.
c. Decreases it by $ 31,200.
d. Decreases it by $ 48,750.