Question

Maxwell acquires 100 percent of the outstanding voting shares of Daisy Company on January 1, 2018. To obtain these shares, Maxwell pays $200,000 cash and issues 6,000 shares of $5 par value common stock on this date. Maxwell’s stock had a fair value of $20 per share. Maxwell also pays an additional $4,000 in stock issuance costs. At date of acquisition, the book values and fair values of Daisy's net assets amounted to $230,000 and $265,000, respectively.How much additional paid-in capital was recorded as a result of the combination?
Select one:
A. $120,000
B. $ 90,000
C. $ 86,000
D. $116,000

Answer 1

Answer:

option (D) $116,000

Explanation:

Given:

Cash paid by Maxwell = $200,000

Shares issued = 6,000

Fair value of shares = $20

Amount paid in stock issuance = $4,000

The book values of Daisy's net assets = $230,000

The fair values of Daisy's net assets = $265,000

Now,

The additional paid capital

= Shares issued × Fair value per share - Amount paid in stock issuance

= 6,000 × $20 - $4,000

= $120,000 - $4,000

= $116,000

Hence, the correct answer is option (D) $116,000