REFERENCE: Ref.02_05
Carnes has the following account balances as of May 1,2000 before a pooling of interests transaction takes place. The fair value of Carnes' Land and Buildings are $650,000 and $550,000,respectively.On May 1,2000,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.
-Assume Riley issues 70,000 shares instead of 30,000 at date of pooling.Assume Riley has no additional paid-in capital on its books.By how much will Riley's retained earnings increase or decrease as a result of the combination?

Question

REFERENCE: Ref.02_05
Carnes has the following account balances as of May 1,2000 before a pooling of interests transaction takes place.  The fair value of Carnes' Land and Buildings are $650,000 and $550,000,respectively.On May 1,2000,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.
-Assume Riley issues 70,000 shares instead of 30,000 at date of pooling.Assume Riley has no additional paid-in capital on its books.By how much will Riley's retained earnings increase or decrease as a result of the combination?

Quizplus · Accepted Answer

Riley's retained earnings will increase by $100,000 as a result of the combination. This is because Riley is issuing 70,000 shares instead of 30,000, which means that it is receiving $100,000 more in cash from the combination. This cash will be recorded as an increase to Riley's retained earnings.

REFERENCE: Ref.02_05 Carnes Has the Following Account Balances as of May 1,2000