When it purchased Sutton, Inc. on January 1, 20X1, Pavin Corporation issued 500,000 shares of its $5 par voting common stock. On that date the fair value of those shares totaled $4,200,000. Related to the acquisition, Pavin had payments to the attorneys and accountants of $200,000, and stock issuance fees of $100,000. Immediately prior to the purchase, the equity sections of the two firms appeared as follows: Immediately after the purchase, the consolidated balance sheet should report retained earnings of:
A)$6,000,000
B)$5,800,000
C)$5,500,000
D)$5,300,000

Question

When it purchased Sutton, Inc. on January 1, 20X1, Pavin Corporation issued 500,000 shares of its $5 par voting common stock. On that date the fair value of those shares totaled $4,200,000. Related to the acquisition, Pavin had payments to the attorneys and accountants of $200,000, and stock issuance fees of $100,000. Immediately prior to the purchase, the equity sections of the two firms appeared as follows:  Immediately after the purchase, the consolidated balance sheet should report retained earnings of:
A)$6,000,000 
B)$5,800,000 
C)$5,500,000 
D)$5,300,000

Quizplus · Accepted Answer

11eb11de_9332_967d_ad38_5dcf9881b27e_TB2014_00 Sutton's retained earnings would be eliminated in consolidation. The payments to attorneys and accountants would be charged to acquisition expense, which would be closed to retained earnings.

When It Purchased Sutton, Inc