Use the Following Information to Answer Questions
Polish Company

question 22

Multiple Choice

Use the following information to answer Questions
Polish Company acquired 90% of Sandwich Company's common stock for $780,000 and 40% of its preferred stock for $180,000.On January 1, 2013, the date of acquisition, the companies reported the following account balances: $\begin{array}{lrr}&\text { Polish Company }& \text { Sandwich Company } \\\text { Preferred stock, } \$ 100 \text { par value } & \$ 500,000 & 360,000 \\\text { Common stock, } \$ 10 \text { par value } & 1,200,000 & 600,000 \\\text { Other contributed capital } & 190,000 & 140,000 \\\text { Retained eamings } & 210,000 & 110,000 \\\text { Total stockholders' equity } & \$ 2,100,000 & \$ 1,200,000\end{array}$ The preferred stock is 10%, cumulative, nonparticipating, and has a liquidation value equal to 104% of par value.Dividends were not paid during 2012.During 2013, Sandwich Company reported net income of $120,000 and declared and paid cash dividends in the amount of $70,000.
-The difference between the implied value of the preferred stock and its book value is

• A)$40,000.
• B)$39,600.
• C)$34,400.
• D)$26,000.
• E)15,840.

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Definitions:

Net Operating Income

A company's revenue minus operating expenses, not including taxes and interest.

Sales Volume

The quantity of units sold within a specified period, crucial for analyzing a company's performance and planning production.

Variable Cost

Costs that vary directly with the level of production or sales volume, such as materials and labor directly involved in creating a product.

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The amount of money a company uses for its advertising efforts to promote its products or services.