Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011 are as follows:

Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share.
What should the adjusted book value of Chase be after the treasury shares were purchased?

A) $400,000.
B) $480,000.
C) $320,000.
D) $336,000.
E) $464,000.

Question

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011 are as follows:

Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share.
What should the adjusted book value of Chase be after the treasury shares were purchased?

A) $400,000. 
B) $480,000. 
C) $320,000. 
D) $336,000. 
E) $464,000.

Quizplus · Accepted Answer

Adjusted book value of Chase = (Original book value - Cost of treasury stock)
= ($400,000 - $80,000)
= $320,000
The 80,000 is calculated as follows: 
8,000 shares x $10 per share = $80,000 
Since Ryan Company owns 80% of Chase Company, the treasury stock will decrease the equity by 80% x $100,000 = $80,000. Therefore, the adjusted book value of Chase Company will be $320,000.

Ryan Company Owns 80% of Chase Company