On January 1, 2013, Nichols Company Acquired 80% of Smith

question 81

Multiple Choice

On January 1, 2013, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: $\begin{array}{l}\text { Common stock, } \$ 10 \text { par value }(50,000 \text { shares outstanding }) &\$500,000\\\text { Preferred stock, } 6 \% \text { cumulative, } \$ 100 \text { par value, }\\3,000 \text { shares outstanding } & 300,000 \\\text { Additional paid in capital } & 200,000 \\\text { Retained earnings } & 500,000\\\text { Total stockholders' equity }&\$1,500,000\end{array}$ Determine the amount and account to be recorded for Nichols' investment in Smith.

• A)$1,324,000 for Investment in Smith.
• B)$1,200,000 for Investment in Smith.
• C)$1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock.
• D)$1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock.
• E)$1,448,000 for Investment in Smith's Common Stock.

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Definitions:

Productive

Productive refers to the capacity to produce or generate outcomes, particularly in relation to work, creativity, or linguistic competence.

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Relating to or denoting the use of language to refer to something, or the ability to use symbols, signs, or objects to represent something else.

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