Polk Issues Common Stock to Acquire All the Assets of the Sam

question 4

Multiple Choice

Polk issues common stock to acquire all the assets of the Sam Company on January 1, 20X5. There is a contingent share agreement, which states that if the income of the Sam Division exceeds a certain level during 20X5 and 20X6, additional shares will be issued on January 1, 20X7. The impact of issuing the additional shares is to

• A)increase the price assigned to fixed assets.
• B)have no effect on asset values, but to reassign the amounts assigned to equity accounts.
• C)reduce retained earnings.
• D)record additional goodwill.

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Definitions:

Collection Expected

This refers to the amount of money a business anticipates receiving from its customers who have purchased goods or services on credit.

Maturity Date

The date on which the principal amount of a loan, bond, or other financial instrument becomes due and payable.

Note Receivable

A written promise for amounts to be received by a creditor from a debtor, typically generating interest income for the holder.

Interest

The cost of borrowing money or the payment received for the investment of money, typically expressed as a percentage of the principal.