Task: Pinehollow and Stonebriar Scenario
Pinehollow acquired all of the outstanding stock of Stonebriar by issuing 100,000 shares of its $1 par value stock. The shares have a fair value of $15 per share. Pinehollow also paid $25,000 in direct acquisition costs. Prior to the transaction, the companies have the following balance sheets:
Assets Pinehollow Stonebriar
Cash $ 150,000 $50,000
Accounts receivable 500,000 350,000
Inventory 900,000 600,000
Property, plant, and equipment (net) 1,850,000 900,000
Total assets $3,400,000 $1,900,000
Liabilities and Stockholders' Equity
Current liabilities $ 300,000 $ 100,000
Bonds payable 1,000,000 600,000
Common stock ($1 par) 300,000 100,000
Paid-in capital in excess of par 800,000 900,000
Retained earnings 1,000,000 200,000
Total liabilities and equity $3,400,000 $1,900,000
The fair values of Stonebriar's inventory and plant, property and equipment are $700,000 and $1,000,000, respectively.
Q1. Refer to the Pinehollow and Stonebriar Scenario. The journal entry to record the purchase of Stonebriar would include a
a. credit to common stock for $1,500,000.
b. credit to additional paid-in capital for $1,100,000.
c. debit to investment for $1,500,000.
d. debit to investment for $1,525,000.
Q2. Refer to the Pinehollow and Stonebriar Scenario. Goodwill associated with the purchase of Stonebriar is ____.
a. $100,000
b. $125,000
c. $300,000
d. $325,000