Question

Carnes has the following account balances as of December 31, 2017 before an acquisition transaction takes place. Inventory $100,000 Land 400,000 Buildings (net) 500,000 Common stock ($10 par) 600,000 Additional paid-in capital 200,000 Retained earnings 200,000 Revenues 450,000 Expenses 250,000 ​ ​ The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On December 31, 2017, Riley Company issues 30,000 shares of its $10 par value ($25 fair value) common stock in exchange for all of the shares of Carnes' common stock. Riley paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account. ​ At the date of acquisition, by how much does Riley's additional paid-in capital increase or decrease? Question 2 options: A) $450,000 increase. B) $640,000 increase. C) $440,000 increase. D) $0. E) $650,000 decrease.

Answer 1

C) $440,000 increase.

Step-by-step explanation:

Particulars Amount

Number of shares issued (a) 30,000

Issued price per shares $25

Less: Par value per shares $10

Paid in capital in excess of par per share (b) $10

Total paid in capital in excess of par (a*b) $450,000

(30,000 shares * $15)

Less: Issue costs $10,000

Increase in additional paid-in-capital $440,000