PVN Corporation acquired all of the stock of SFC Corporation by issuing 1,000,000 shares of no-par...

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PVN Corporation acquired all of the stock of SFC Corporation by issuing 1,000,000 shares of no-par...

PVN Corporation acquired all of the stock of SFC Corporation by issuing 1,000,000 shares of no-par stock with a market value of $40 per share. Registration fees were $500,000 and legal fees were $300,000, all paid in cash. SFC's book value at the date of acquisition was $8,000,000. At the date of acquisition, all of SFC's assets and liabilities were reported at amounts approximating fair value, except that its plant and equipment was overvalued by $10,000,000. SFC also had unreported identifiable intangible assets valued at $15,000,000, and unreported warranty liabilities of $4,000,000. A deferred tax liability valued at $2 million was reported in consolidation at the date of acquisition.

Eliminating entry (R) reduces Investment in SFC by:

A	$32,800,000

	B	$32,300,000
	C	$32,000,000
	D.	$40,000,000

business accounting

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Answer 1

Answer #1

Calculation of purchase consideration	No. of shares issued * market price
Calculation of purchase consideration=	$40,000,000
Hence, Investment value	$40,000,000

Note: As per ASC 805, other expenses like legal fees and registration fees are not included in purchase consideration

Hence, correct answer is D. 40,000,000

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Answer 2

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