When It Purchased Sutton, Inc

question 38

Multiple Choice

When it purchased Sutton, Inc. on January 1, 20X1, Pavin Corporation issued 500,000 shares of its $5 par voting common stock. On that date the fair value of those shares totaled $4,200,000. Related to the acquisition, Pavin had payments to the attorneys and accountants of $200,000, and stock issuance fees of $100,000. Immediately prior to the purchase, the equity sections of the two firms appeared as follows: Immediately after the purchase, the consolidated balance sheet should report retained earnings of:

• A)$6,000,000
• B)$5,800,000
• C)$5,500,000
• D)$5,300,000

---

Definitions:

Erythrocytes

Red blood cells responsible for carrying oxygen from the lungs to the body tissues and carbon dioxide from the tissues back to the lungs, facilitated by the protein hemoglobin.

Oxygen-carrying Capacity

The maximum amount of oxygen that can be carried in the blood, mainly determined by the hemoglobin concentration.

Thrombin

An enzyme in blood plasma that causes the clotting of blood by converting fibrinogen to fibrin, playing a central role in hemostasis.

Universal Recipient

A term commonly used to describe individuals with AB positive blood type, who can receive red blood cells from any other blood type.