Question

Huge Co. issues 170,625 shares of common stock ($1 par value) to acquire Little Co. in a purchase business combination. The market value of Huge's common stock is $9. Consulting fees incurred in relationship to the purchase are $80,000. Issuance and registration costs for the common stock are $50,000. What should be recorded in Huge's additional paid-in capital account for this business combination?

Answer 1

Answer: additional paid-in capital account for this business combination is $1,315,000

Step-by-step explanation:

Number of shares = 170,625 at $1 par value

Market value = $9

Consulting fee = $80,000

Issuance and registration = $50,000

Investment (170,625 × $9). 1,535,625. Dr.

Consulting expenses 110,000. Dr.

Additional paid in capital is given by;

170,625 × ($9 - $1) - Issuance and registration fee

= $1,365,000 - $50,000

$1,315,000