Use the Following Information to Answer Questions
Pentagon Company

question 40

Multiple Choice

Use the following information to answer Questions
Pentagon Company acquired 90% of Smoker Company's common stock for $1,300,000 and 40% of its preferred stock for $300,000.On January 1, 2013, the date of acquisition, the companies reported the following account balances: $\begin{array}{lrr}&\text { Pentagon Company } & \text { Smoker Company } \\\text { Preferred stock, } \$ 100 \text { par value } & \$ 800,000 & \$ 600,000 \\\text { Common stock, } \$ 10 \text { par value } & 2,000,000 & 1,000,000 \\\text { Other contributed capital } & 320,000 & 230,000 \\\text { Retained eamings } & 350,000 & 180,000 \\\text { Total stockholders' equity } & \$ 3,470,000 & \$ 2,010,000\end{array}$ The preferred stock is 10%, cumulative, nonparticipating, and has a liquidation value equal to 102% of par value.Dividends were not paid during 2012.During 2013, Smoker Company reported net income of $200,000 and declared and paid cash dividends in the amount of $120,000.
-The difference between the implied value of the preferred stock and its book value is

• A)$60,000.
• B)$78,000
• C)$55,200.
• D)$36,000.
• E)none of these.

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Definitions:

Appraisal Remedy

A legal process that allows shareholders to have a court assess the value of their shares, often used in cases of mergers or acquisitions where shareholders are dissatisfied with the proposed compensation.

Dissenting Shareholder

refers to a shareholder who disagrees with a corporate decision and is entitled to certain rights, such as selling their shares back to the company under specific conditions.

Fundamental Change

A significant alteration in the structure, operations, or policies of a company or organization that fundamentally affects its nature.

Prescribed Time Period

A specific duration set by a statute or agreement within which an action must be taken or a right may expire.