On January 1, 2021, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: With respect to Nichols' investment in Smith, determine the amount to be recorded and identify which account should be adjusted to reflect such amount.
A) $1,324,000 for Investment in Smith.
B) $1,200,000 for Investment in Smith.
C) $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock.
D) $1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock.
E) $1,448,000 for Investment in Smith's Common Stock.

Question

On January 1, 2021, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is:  With respect to Nichols' investment in Smith, determine the amount to be recorded and identify which account should be adjusted to reflect such amount.
A) $1,324,000 for Investment in Smith. 
B) $1,200,000 for Investment in Smith. 
C) $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock. 
D) $1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock. 
E) $1,448,000 for Investment in Smith's Common Stock.

Quizplus · Accepted Answer

The Answer of On January 1, 2021, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is:  With respect to Nichols' investment in Smith, determine the amount to be recorded and identify which account should be adjusted to reflect such amount.
A) $1,324,000 for Investment in Smith. 
B) $1,200,000 for Investment in Smith. 
C) $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock. 
D) $1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock. 
E) $1,448,000 for Investment in Smith's Common Stock.

On January 1, 2021, Nichols Company Acquired 80% of Smith