Pinehollow Acquired All of the Outstanding Stock of Stonebriar by Issuing

question 31

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.The journal entry to record the purchase of Stonebriar would include a

• A)credit to common stock for $1,500,000.
• B)credit to paid-in capital in excess of par for $1,100,000.
• C)debit to investment for $1,500,000.
• D)debit to investment for $1,525,000.

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Definitions:

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Implied Authority

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Apparent Authority

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An agreement or decision that has been formally approved and confirmed by the required parties.