Carnes Has the Following Account Balances as of May 1

question 75

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. On May 1, 2012, what value is assigned to Riley's investment account?

• A)$150,000.
• B)$300,000.
• C)$750,000.
• D)$760,000.
• E)$1,350,000.

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Definitions:

Dividend Payable

A liability recorded on the balance sheet for dividends declared by the company but not yet paid to shareholders.

Shareholders' Equity

The amount of capital given to a company by its shareholders plus retained earnings or minus the company's liabilities.

Total Liabilities

The sum of all financial obligations a company owes to external parties, including debts and other payable amounts.