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: The consolidation entry at date of acquisition will include (referring to Smith):
A) Debit Common stock $500,000 and debit Preferred stock $120,000.
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000.
C) Debit Common stock $500,000 and debit Preferred stock $300,000.
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000.
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.

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:  The consolidation entry at date of acquisition will include (referring to Smith):
A) Debit Common stock $500,000 and debit Preferred stock $120,000. 
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000. 
C) Debit Common stock $500,000 and debit Preferred stock $300,000. 
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000. 
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.

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:  The consolidation entry at date of acquisition will include (referring to Smith):
A) Debit Common stock $500,000 and debit Preferred stock $120,000. 
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000. 
C) Debit Common stock $500,000 and debit Preferred stock $300,000. 
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000. 
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.

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