Multiple-Choice Questions on Reported Balances [AICPA Adapted]
Select the correct answer for each of the following questions.
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.
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 determinable. The fair value of Sandin’s net identifiable assets was determined to be $570,000. Rolan’s investment in Sandin’s stock will be stated in Rolan’s balance sheet immediately after the combination in the amount of
a. $350,000.
b. $500,000.
c. $570,000.
d. $600,000.
3. 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 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.
4. 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. $4,000,000.
d. $4,400,000.
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