Question

Nash Company acquired Seel Corporation through an exchange of common shares. All of Seel's assets and liabilities were immediately transferred to Nash. Nash's common stock was trading at $25 per share at the time of the exchange. The total par value of Nash's stock outstanding before and after the acquisition was $750,000 and $840,000, respectively. Nash's additional paid-in capital before and after the acquisition were $200,000 and $560,000, respectively.

Based on the preceding information, what number of shares did Nash issue at the time of the exchange?
A) 3,600
B) 5,000
C) 14,400
D) 18,000

Answer 1

Nash issued 18,000 shares at the time of the exchange. The correct answer is D.

Step-by-step explanation:

To find the number of shares that Nash issued at the time of the exchange, we need to calculate the increase in additional paid-in capital (APIC). APIC is the amount that shareholders have paid in excess of a company's par value. In this case, the increase in APIC is $560,000 - $200,000 = $360,000.

The increase in APIC is equal to the number of shares issued multiplied by the difference between the stock price and the par value. We can set up the following equation: $360,000 = (Number of shares) * ($25 - Par value).

Since the total par value increased from $750,000 to $840,000, the increase is $840,000 - $750,000 = $90,000. Therefore, the par value is $90,000 / (Number of shares before the acquisition) = $90,000 / ($840,000 / $25) = 3,500.

Now we can substitute the par value into the equation and solve for the number of shares:

$360,000 = (Number of shares) * ($25 - $3,500).

Dividing both sides of the equation by ($25 - $3,500), we get:

(Number of shares) = $360,000 / ($25 - $3,500) = 18,000.

Therefore, Nash issued 18,000 shares at the time of the exchange. The correct answer is D) 18,000.