Carnes has the following account balances as of May 1, 2010 before an acquisition transaction takes place.

The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On May 1, 2010, 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. Riley paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account.
What will be Riley's balance in its common stock account as a result of this acquisition?

Question

Carnes has the following account balances as of May 1, 2010 before an acquisition transaction takes place.

The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On May 1, 2010, 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. Riley paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account.
What will be Riley's balance in its common stock account as a result of this acquisition?

Quizplus · Accepted Answer

The calculation of the fair value of Carnes' assets is not relevant to this question. Riley Company issued 30,000 shares of its common stock with a par value of $10 and a fair value of $25, for a total value of $750,000 (30,000 x $25). Out of this total value, $700,000 will be recorded in the common stock account (30,000 x $10), and the remaining $50,000 will be recorded in the additional paid-in capital account. Adding the $10,000 for issuance costs, Riley's balance in its common stock account after the acquisition will be $710,000 ($700,000 + $10,000).

Carnes Has the Following Account Balances as of May 1