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25 January, 11:18

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

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Answers (1)
  1. 25 January, 11:19
    0
    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
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