Question

objective question

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 Additional Paid-In Capital Retained Earnings $3,000,000 1,300,000 2,500,000 $6,800,000 $1,500,000 150,000 850,000 $2,500,000 In the December 31, 20X3, combined balance sheet, additional paid-in capital should be reported at Select one: a. $2,900.000 b. $1,300,000 c. $1,450,000 d. $950,000

Answer 1

Answer-1:

Poe’s additional paid-in capital                                                $1,300,000

Additional paid-in capital for shares issued to Saxe

[(200,000 × ($18 - $10)]                                                             $1,600,000

Total additional paid-in capital                                                   $2,900,000

Hence option ‘a’ is the correct answer.

Answer-2:

Option 'b' is the correct answer.

Answer-3:

Fair value of the reporting unit                                   $560,000.

Fair value of its net identifiable assets                      $500,000

Value of goodwill                                                          $60,000

Old goodwill value           $90,000

New goodwill value         $60,000

Impairment of goodwill $30,000

Hence option 'b' is the correct answer.

Answer-4:

Consideration paid                                         $800,000

Less: Fair value of net assets acquired:

         Cash                                    $80,000

        Inventory                              190,000      

        Property $ equipment           560,000                                                                                                  

                 Total assets               830,000

       (-) Liabilities                          180,000       650,000

                                    Goodwill                   $150,000

Hence option 'd' is the correct answer.