On January 1, 2013, Harrison Corporation Spent $2,600,000 to Acquire

question 63

Multiple Choice

On January 1, 2013, Harrison Corporation spent $2,600,000 to acquire control over Involved, Inc. This price was based on paying $750,000 for 30 percent of Involved's preferred stock, and $1,850,000 for 80 percent of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows: $$\begin{array} { | l | r | } \hline \text { Common stock, } \$ 10 \text { par value, } 100,000 \text { shares outstanding } & \$ 1,000,000 \\\hline \text { Preferred stock, } \% \% \text { fully participating, } \$ 100 \text { par value, } & \\\hline 10,000 \text { shares outstanding } & 1,000,000 \\\hline \text { Retained Earnings } & 2,000,000 \\\hline \text { Total stockholders' equity } & \$ 4,000,000 \\\hline\end{array}$$ What is the total acquisition-date fair value of Involved?

• A)$2,600,000
• B)$4,812,500
• C)$3,062,500
• D)$2,312,500
• E)$3,250,000

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Definitions:

Consolidated Retained Earnings

The portion of net earnings not paid out as dividends, but retained by the company to reinvest in its core business, or to pay debt, reported in the consolidated financial statements.

Subsidiary's Adjusted Income

The net income of a subsidiary company after making adjustments for fair value measurements, currency translation, and other accounting policies.

Dividends

Payments made by a corporation to its shareholder members, distributing a portion of the company's earnings.

Notes Payable

A written promise to pay a specified sum of money, usually with interest, by a certain date, classified as a liability on the balance sheet.