On January 1 2016, Pounder Company purchased 75% of Sludge Company for $500,000. Sludge Company's stockholders' equity on that date was equal to $600,000 and Sludge Company had 60,000 shares issued and outstanding on that date. Sludge Company Corporation sold an additional 15,000 shares of previously unissued stock on December 31, 2016. Assume Sludge Company sold the 15,000 shares to outside interests, Pounder Company's percent ownership would be:
A) 33 1/3%
B) 60%
C) 75%
D) 80%

Question

Quizplus · Accepted Answer

Pounder Company initially owned 45,000 shares (75% of 60,000). After Sludge Company issued 15,000 new shares, the total shares became 75,000. Pounder still owns 45,000 shares, so its ownership percentage is 45,000/75,000 = 60%.

On January 1 2016, Pounder Company Purchased 75% of Sludge