What is the increase in the consolidated equity due to stock portion of the consideration?

• A. 500
• B. 1000
• C. 0
• D. 800

Answer: (A)

When you acquire a subsidiary and part of the price is paid with stock, that stock portion increases consolidated equity by the stock’s fair value. The equity rise is the value of the shares issued, not their par value alone, and it is split between common stock at par and additional paid-in capital for the amount over par. So, if the stock portion is valued at 500, the consolidated equity increases by 500 in total (e.g., common stock increases by the par value, and additional paid-in capital increases by the remainder). The cash portion of the consideration does not increase equity on its own; it reduces cash (an asset) while the stock portion boosts equity by its fair value.