On January 1, 2021, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: Common stock, $10 par value (50,000 shares outstanding) $ 500,000 Preferred stock, 6% cumulative, $100 par value, 3,000 shares outstanding 300,000 Additional paid in capital 200,000 Retained earnings 500,000 Total stockholders' equity $ 1,500,000 The consolidation entry at date of acquisition will include (referring to Smith): O Debit Common stock $400,000 and debit Additional paid-in capital $160,000. O Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000. O Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000. O Debit Common stock $500,000 and debit Preferred stock $120,000. O Debit Common stock $500,000 and debit Preferred stock $300,000.
On January 1, 2021, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: Common stock, $10 par value (50,000 shares outstanding) $ 500,000 Preferred stock, 6% cumulative, $100 par value, 3,000 shares outstanding 300,000 Additional paid in capital 200,000 Retained earnings 500,000 Total stockholders' equity $ 1,500,000 The consolidation entry at date of acquisition will include (referring to Smith): O Debit Common stock $400,000 and debit Additional paid-in capital $160,000. O Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000. O Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000. O Debit Common stock $500,000 and debit Preferred stock $120,000. O Debit Common stock $500,000 and debit Preferred stock $300,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2021, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative
preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. There was
no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill.
The capital structure of Smith immediately prior to the acquisition is:
Common stock, $10 par value (50,000 shares outstanding)
$ 500,000
Preferred stock, 6% cumulative, $100 par value, 3,000 shares outstanding 300,000
Additional paid in capital
200,000
Retained earnings
Total stockholders' equity
The consolidation entry at date of acquisition will include (referring to Smith):
500,000
$1,500,000
O Debit Common stock $400,000 and debit Additional paid-in capital $160,000.
O Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000.
O Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.
O Debit Common stock $500,000 and debit Preferred stock $120,000.
O Debit Common stock $500,000 and debit Preferred stock $300,000.
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