Advanced Accounting 10th Edition by Thomas Schaefer, Joe Ben Hoyle, Timothy Doupnik

Exercise 17

Areola, Inc., acquires all 40.000 shares of Tuscola Company for $725,000.A year later, when Areola's equity adjusted balance in its investment in Tuscola equals $800,000, Tuscola issues an additional 10.000 shares to outside investors for $25 per share.Which of the following best describes the effect of Tuscola's stock issue on Areola's investment account
a.No effect because the shares were all sold to outside parties.
b.The investment account is reduced because Areola now owns a smaller percentage of Tuscola.
c.The investment account is increased because Areola's share of Tuscola's value has increased.
d.No effect because Areola maintains control over Tuscola despite the new stock issue.