McCoy Has the Following Account Balances as of December 31

question 65

Multiple Choice

McCoy has the following account balances as of December 31, 2020 before an acquisition transaction takes place. The fair value of McCoy's Land and Buildings are $650,000 and $600,000, respectively. On December 31, 2020, Ferguson Company issues 30,000 shares of its $10 par value ($30 fair value) common stock in exchange for all of the shares of McCoy's common stock. Ferguson paid $12,000 for costs to issue the new shares of stock. Before the acquisition, Ferguson has $800,000 in its common stock account and $350,000 in its additional paid-in capital account.What will be the consolidated additional paid-in capital as a result of this acquisition?

• A) $350,000.
• B) $650,000.
• C) $938,000.
• D) $950,000.
• E) $962,000.

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Definitions:

Foreign Exchange Risk

The potential change in earnings or financial position from fluctuating exchange rates affecting international financial transactions.

Forward Contract

An agreement to buy or sell an asset at a future date for a price agreed upon today.

Spot Rate

Refers to the immediate exchange rate at which one currency can be exchanged for another without any delay.

Fair Value Hedge

A type of hedge that is used to mitigate the risk of changes in the fair value of an asset or liability or an identified portion of such an asset or liability.