Cfa mock am 46 equity, should, capital, amount

dandman

Why did they add the amount paid to the capital stock?

tHey paid 67.2 mil with their own stock, so their equity should go down by that amount.

It should be 280 - 67.2 and not 280+67.2

thoughts?

senlinlang

I am 99.9% confident the answer should be $442,600.

44.8 (min int) + (280 - 67.2) + 185 = 442.6

They had 280 in stock originally and then paid 67.2 for the company.

If someone can prove this wrong, then I am 100% screwed.

stalkey

Under Consolidated, subsidiary equity is untouched. You combine the balance sheet of both and create a minority interest line to represent the portion of equity you DO NOT own. So had this been a CASH transaction you would've seen:

Capital Stock: 280
Retained Earnings: 185
Minority Interest of 40% x 112 = 44.8
Total Equity = 509.8

The portion of your investment, 67.2 would've been a reduction in your cash (which is why you don't see it in Equity). But because your acquisition was financed through equity, ie your own shares, you need to reflect the increased number of shares.

Think of it this way... had this been financed 100% cash, your balance sheet post-acqusition would be Total Assets of both companies, less the cash spent on the acqusition. Since NO cash was spent in this scenario, your Asset side is that MUCH HIGHER. And in order to make the equation A = L + E check, you need to increase the RIGHT SIDE of the balance sheet, which would be the equity account.