Multiple-Choice Questions on Reported Balances [AICPA Adapted]
Select the correct answer for each of the following questions.
Question 1. On December 31, 20X3, Saxe Corporation was merged into Poe Corporation. In the business combination, Poe issued 200,000 shares of its $10 par common stock, with a market price of $18 a share, for all of Saxe’s common stock. The stockholders’ equity section of each company’s balance sheet immediately before the combination was:
Poe Saxe
Common Stock $3,000,000 $1,500,000
Additional Paid-In Capital 1,300,000 150,000
Retained Earnings 2,500,000 850,000
$6,800,000 $2,500,000
In the December 31, 20X3, consolidated balance sheet, additional paid-in capital should be reported at:
a. $950,000.
b. $1,300,000.
c. $1,450,000.
d. $2,900,000.
Question 2. On January 1, 20X1, Rolan Corporation issued 10,000 shares of common stock in exchange for all of Sandin Corporation’s outstanding stock. Condensed balance sheets of Rolan and Sandin immediately before the combination follow:
Rolan Sandin
Total Assets $1,000,000 $500,000
Liabilities $ 300,000 $150,000
Common Stock ($10 par) 200,000 100,000
Retained Earnings 500,000 250,000
Total Liabilities and Equities $1,000,000 $500,000
Rolan’s common stock had a market price of $60 per share on January 1, 20X1. The market price of Sandin’s stock was not readily ascertainable. Rolan’s investment in Sandin’s stock will be stated in Rolan’s balance sheet immediately after the combination in the amount of:
a. $100,000.
b. $350,000.
c. $500,000.
d. $600,000.
Question 3. On February 15, 20X1, Reed Corporation paid $1,500,000 for all of Cord Inc.’s issued and outstanding common stock. The book values and fair values of Cord’s assets and liabilities on February 15, 20X1, were as follows:
Book Value Fair Value
Cash $160,000 $160,000
Receivables 180,000 180,000
Inventory 290,000 270,000
Property, plant, and equipment 870,000 960,000
Liabilities (350,000) (350,000)
Net worth $1,150,000 $1,220,000
What is the amount of goodwill resulting from the business combination?
a. $0.
b. $70,000.
c. $280,000.
d. $350,000.
Question 4. On April 1, 20X2, Jack Company paid $800,000 for all of Ann Corporation’s issued and outstanding common stock. Ann’s recorded assets and liabilities on April 1, 20X2, were as follows:
Cash $80,000
Inventory 240,000
Property and equipment (net of accumulated depreciation of $320,000) 480,000
Liabilities (180,000)
On April 1, 20X2, Ann’s inventory was determined to have a fair value of $190,000 and that the property and equipment had a fair value of $560,000. What is the amount of goodwill resulting from the business combination?
a. $0.
b. $50,000.
c. $150,000.
d. $180,000.
Question 5. Action Corporation issued nonvoting preferred stock with a fair market value of $4,000,000 in exchange for all the outstanding common stock of Master Corporation. On the date of the exchange, Master had tangible net assets with a book value of $2,000,000 and a fair value of $2,500,000. In addition, Action issued preferred stock valued at $400,000 to an individual as a finder’s fee in arranging the transaction. As a result of this transaction, Action should record an increase in net assets of:
a. $2,000,000.
b. $2,500,000.
c. $2,900,000.
d. $4,400,000.