Question

Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1, 2013. To obtain these shares, Flynn pays $400 cash (in thousands) and issues 10,000 shares of $20 par value common stock on this date. Flynn's stock had a fair value of $36 per share on that date. Flynn also pays $15 (in thousands) to a local investment firm for arranging the acquisition. An additional $10 (in thousands) was paid by Flynn in stock issuance costs.The book values for both Flynn and Macek as of January 1, 2013, follow. The fair value of each of Flynn and Macek accounts is also included. In addition, Macek holds a fully amortized trademark that still retains a $40 (in thousands) value. The figures below are in thousands. Any related question also is in thousands.Flynn, Inc Macek CompanyBook Value Fair ValueCash $900 $80 $80Receivables 480 180 160Inventory 660 260 300Land 300 120 130Buildings (net) 1,200 220 280Equipment 360 100 75Accounts Payable 480 60 60Long-term liabilities 1,140 340 300Common stock 1,000 80 Additional paid-in capital 200 0 Retained Earnings 1,080 480 1. By how much will Flynn's additional paid-in capital increase as a result of this acquisition?(A) $150,000.(B) $160,000.(C) $230,000.(D) $350,000.(E) $360,000.

Answer 1

D) $350,000.

Step-by-step explanation:

The computation of the additional paid in capital is shown below:

= Issued shares × par value + Issued shares × (fair value - par value) - stock issuance cost

= 10,000 shares × $20 + 10,000 shares × ($36 - $20) - $10,000

= $200,000 + $160,000 - $10,000

= $350,000

The other information which is given in the question is not relevant. Hence, it will be ignored