Pinehollow Acquired All of the Outstanding Stock of Stonebriar by Issuing

question 37

Multiple Choice

Pinehollow acquired all of the outstanding stock of Stonebriar by issuing 100,000 shares of its $1 par value stock.The shares have a fair value of $15 per share.Pinehollow also paid $25,000 in direct acquisition costs.Prior to the transaction, the companies have the following balance sheets:
$\begin{array}{lrr}\text { Assets } &\text { Pinehollow } & \text { Stonebriar }\\\text { Cash } & \$ 150,000 & \$ 50,000 \\\text { Accounts receivable } & 500,000 & 350,000 \\\text { Inventory } & 900,000 & 600,000 \\\text { Property, plant, and equipment (net) } & \underline{1,850,000} & 900,000 \\\text { Total assets } & \$ 3,400,000 & \$ 1,900,000\\\\\text { Liabilities and Stockholders' Equity }\\ \text { Current liabilities } & \$ 300,000 & \$ 100,000 \\\text { Bonds payable } & 1,000,000 & 600,000 \\\text { Common stock ( } \$ 1 \text { par) } & 300,000 & 100,000 \\\text { Paid-in capital in excess of par } & 800,000 & 900,000 \\\text { Retained earnings } & \underline{1,000,000} & \underline{200,000} \\\text { Total liabilities and equity } & \$ 3,400,000 & \$ 1,900,000\end{array}$
The fair values of Stonebriar's inventory and plant, property and equipment are $700,000 and $1,000,000, respectively.What is the amount of goodwill that will be included in the consolidated balance sheet immediately following the acquisition?

• A)$100,000
• B)$125,000
• C)$300,000
• D)$325,000

---

Definitions:

Unit Fixed

This specifies a cost or charge that remains constant per unit regardless of changes in the level of activity or volume of production.

Costs

Costs refer to the expenditures incurred by a business in the process of generating revenues.

Unit Contribution Margin

The difference between the selling price per unit and the variable cost per unit.

Fixed Costs

Expenses that remain constant regardless of the amount of production or sales, including rent, wages, and insurance premiums.