Carnes Has the Following Account Balances as of May 1

question 86

Multiple Choice

Carnes has the following account balances as of May 1, 2012 before an acquisition transaction takes place. $\begin{array}{lr}\text { Inventory } & \$ 100,000 \\\text { Land } & 400,000 \\\text { Buildings (net) } & 500,000 \\\text { Common stock (\$10 par) } & 600,000 \\\text { Additional paid-in capital } & 200,000 \\\text { Retained Earnings } & 200,000 \\\text { Revenues } & 450,000 \\\text { Expenses } & 250,000\end{array}$ The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On May 1, 2012, Riley Company issues 30,000 shares of its $10 par value ($25 fair value) common stock in exchange for all of the shares of Carnes' common stock. Riley paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account. At the date of acquisition, by how much does Riley's additional paid-in capital increase or decrease?

• A)$0.
• B)$440,000 increase.
• C)$450,000 increase.
• D)$640,000 increase.
• E)$650,000 decrease.

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Definitions:

Reckless Disregard

Reckless disregard denotes a conscious indifference to the rights or safety of others or a known risk, acting without concern for the likely consequences.

Fraudulent Misrepresentation

A false statement made knowingly, without believing in its truth, or recklessly, with the intention to deceive and induce another party to enter into a contract.

Liable

Liable means being legally responsible for something, typically involving financial compensation or another form of restitution.

Reliance

The act of relying or depending on something, often related to a belief or action based on certain expectations or promises.