On January 1, 2013, Nichols Company Acquired 80% of Smith

question 115

Multiple Choice

On January 1, 2013, 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: Determine the amount and account to be recorded for Nichols' investment in Smith.

• A) $1,324,000 for Investment in Smith.
• B) $1,200,000 for Investment in Smith.
• C) $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock.
• D) $1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock.
• E) $1,448,000 for Investment in Smith's Common Stock.

---

Definitions:

Actual Value

The real value observed or measured, as opposed to an estimated or theoretical value.

Sample Mean

is the average value of a subset of observations from a larger population.

Sample Variance

Sample variance is a measure of the dispersion or variability of a sample dataset, calculating how much the numbers differ from the sample mean.

Consistent

A statistical property indicating that as the size of the sample increases, the estimator converges in probability to the parameter being estimated.