Please show work to solve problem below and get correct answer. On January 1, 20
ID: 2479929 • Letter: P
Question
Please show work to solve problem below and get correct answer.
On January 1, 2009, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill.
The capital structure of Smith immediately prior to the acquisition is:
Common stock $10 par value (50,000 o/s) - $500,000
Preferred stock 6% cumlative, 100 par value, 3000 shares o/s - $300,000
Additional paid in capital - $200,000
Retained Earnings - $ 500,000
Total Stockholders equity - $1,500,000
Compute the goodwill recognized in cosolidation:
A. 800,000
B. 310,000
C. 124,000
D. 0
E. -196,000
With correct answer being B. 310,000
Compute the noncontrolling interest in Smith at date of acquisition.
A. $486,000.
B. $480,000.
C. $300,000.
D. $150,000.
E. $120,000.
Wtih correct answer being A. 486,000
Explanation / Answer
Answer 1. $310,000 Fair Value of Common Shares ($1,200,000 / 80%) 1,500,000 Fair Value of Prefereed shares ($124,000 / 40%) 310,000 Total Value 1,810,000 Less Book Value of Shares Common Stock 500,000 Preferred Stock 300,000 Additional Paid in Capital 200,000 Retained Earnings 500,000 Total stockholders' Equity 1,500,000 Gooodwill 310,000 Answer 2. 486,000 Non Controlling Interets in Smith Common Shares - $1,500,000 X 20% 300,000 Preferred Shares - $310,000 X 60% 186,000 Total Non Controlling Interest 486,000