Judd Company Issued Nonvoting Preferred Stock with a Fair Value

question 16

Multiple Choice

Judd Company issued nonvoting preferred stock with a fair value of $1,500,000 in exchange for all the outstanding common stock of the Bath Corporation. On the date of the exchange, Bath had tangible net assets with a book value of $900,000 and a fair value of $1,400,000. In addition, Judd issued preferred stock valued at $100,000 to an individual as a finder's fee for arranging the transaction. As a result of these transactions, Judd should report an increase in net assets of ____.

• A) $900,000
• B) $1,400,000
• C) $1,500,000
• D) $1,600,000

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Definitions:

Socially Optimal Level

An economic condition where resources are allocated in a way that maximizes the overall benefit to society, considering both efficiency and equity.

Regulation

A rule or directive made and maintained by an authority.

Taxation

The process by which governments charge fees on individuals and corporations to fund public services and infrastructure.

Market Inefficiencies

Situations where resources are not distributed optimally in a market, often leading to a loss in economic or social value.