On January 1, 2013, the Moody Company Entered into a Transaction

question 103

Multiple Choice

On January 1, 2013, the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Note: Parentheses indicate a credit balance.
In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60.
What amount was recorded as the investment in Osorio?

• A) $930.
• B) $820.
• C) $800.
• D) $835.
• E) $815.

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Definitions:

Dividend

A share of a firm's income allocated to its stockholders, often in cash or extra shares.

Perceivable Future

A concept referring to events or conditions that can reasonably be foreseen or predicted.

Quarterly Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits, every three months.

Par Value

The face value of a bond or stock as stated by the issuer, which bears significance for accounting and financial regulation.