On January 1, 2009, Nichols Company Acquired 80% of Smith

question 86

Multiple Choice

On January 1, 2009, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is:

The consolidation entry at date of acquisition will include (referring to Smith) :

• A) Debit Common stock $500,000 and debit Preferred stock $120,000.
• B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000.
• C) Debit Common stock $500,000 and debit Preferred stock $300,000.
• D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000.
• E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.

---

Definitions:

Agricultural Products

Items produced through farming and agriculture, including crops, livestock, and other raw goods used for food, fabric, or industry.

Price Inelastic

A characteristic of a good or service whose demand does not significantly change when its price changes.

Agricultural Products

Goods derived from farming and the cultivation of soil, including crops and livestock.

Agricultural Industry

The sector of the economy focused on the production, processing, and distribution of food, fiber, and related products.