Compute the amount of consolidated cash after recording the acquisition transaction

A)  $220.

B)  $185.

C)  $200.

D)  $205.

E)  $215.

Answer: B

Learning Objective: 02-05 

Learning Objective: 02-06b

Learning Objective: 02-07

Topic: Acquisition―Calculate consideration transferred

Topic: Costs of combination

Topic: Acquisition―Calculate consolidated balances

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback:

Moody’s Cash on Acquisition Date: $180

Osario’s Cash on Acquisition Date: $40

Reductions to Cash for Business Combination Related Costs and Expenses ($20 + $15) = $35

Combined: $180 + $40 Sub – $35 = $185

REFERENCE: 02-05

Carnes has the following account balances as of December 31, 2017 before an acquisition transaction takes place.

Inventory

$100,000

Land

  400,000

Buildings (net)

  500,000

Common stock ($10 par)

  600,000

Additional paid-in capital

  200,000

Retained Earnings
Revenues

     200,000
     450,000

Expenses

     250,000

The fair value of Carnes’ Land and Buildings are $650,000 and $550,000, respectively.  On December 31, 2017, 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.