Crown Company had common stock of $360,000 and retained earnings of $510,000. Baker Inc. had common stock of $750,000 and retained earnings of $970,000. On January 1, 2021, Baker issued 32,000 shares of common stock with a $13 par value and a $37 fair value for all of Crown Company's outstanding common stock. This combination was accounted for using the acquisition method. Immediately after the combination, what was the amount of total consolidated net assets?
A) $2,054,000.
B) $2,136,000.
C) $2,590,000.
D) $2,904,000.
E) $3,006,000.

Question

Quizplus · Accepted Answer

The total consolidated net assets are calculated by adding Baker Inc.'s net assets (common stock + retained earnings) to the fair value of the consideration given for Crown Company. Baker's net assets are $750,000 + $970,000 = $1,720,000. The fair value of the consideration given is 32,000 shares * $37 = $1,184,000. Therefore, the total consolidated net assets are $1,720,000 + $1,184,000 = $2,904,000.

Crown Company Had Common Stock of $360,000 and Retained Earnings