When It Purchased Sutton, Inc Immediately After the Purchase, the Consolidated Balance Sheet Should Report

question 41

Multiple Choice

When it purchased Sutton, Inc.on January 1, 2016, Pavin Corporation issued 500,000 shares of its $5 par voting common stock.On that date the fair value of those shares totaled $4,200,000.Related to the acquisition, Pavin had payments to the attorneys and accountants of $200,000, and stock issuance fees of $100,000.Immediately prior to the purchase, the equity sections of the two firms appeared as follows:
$\begin{array}{lrr} & \underline { \text { Pavin } } & \text { Sutton } \\\text { Common stock } & \$ 4,000,000 & \$ 700,000 \\\text { Paid-in capital in excess of par } & 7,500,000 & 900,000 \\\text { Retained earnings } & 5,500,000 & 500,000 \\\text { Total } & \$ 17,000,000 & \$ 2,100,000\end{array}$
Immediately after the purchase, the consolidated balance sheet should report retained earnings of:

• A)$6,000,000
• B)$5,800,000
• C)$5,500,000
• D)$5,300,000

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