Question

On August 31, 2010, Wood Corp. issued 100,000 shares of its $20 par value common stock for the net assets of Pine, Inc., in a business combination accounted for using the acquisition method. The market value of Wood's common stock on August 31 was $36 per share. Wood paid a fee of $160,000 to the consultant who arranged this acquisition. Costs of registering and issuing the equity securities amounted to $80,000. No goodwill was involved in the purchase. What amount should Wood capitalize as the cost of acquiring Pine's net assets?

Answer 1

Answer: $3,600,000 is the amount Wood should capitalize as the cost of acquiring Pine's net assets.

Given:

Wood Corp. issued 100,000 shares of its $20 par value

The market value of Wood's common stock on August 31 was $36 per share.

Wood paid a fee of $160,000 to the consultant who arranged this acquisition.

Costs of registering and issuing the equity securities amounted to $80,000.

∴ Cost of acquiring = 100,000 shares issued × $36 per share

= $3,60,000