Price Company issued 8,000 shares of its $20 par value common stock for the net assets of Sims Company in a business combination under which Sims Company will be merged into Price Company.
On the date of the combination, Price Company common stock had a fair value of $30 per share. Balance sheets for Price Company and Sims Company immediately prior to the combination were:
|
|
Price
|
Sims
|
|
Current assets
|
|
$ 438,000
|
$ 64,000
|
|
Plant and equipment (net)
|
|
575,000
|
136,000
|
|
Total
|
|
$1,013,000
|
$200,000
|
|
Liabilities
|
|
$ 300,000
|
$ 50,000
|
|
Common stock, $20 par value
|
|
550,000
|
80,000
|
|
Other contributed capital
|
|
72,500
|
20,000
|
|
Retained earnings
|
|
90,500
|
50,000
|
|
Total
|
|
$1,013,000
|
$200,000
|
Required:
Select the letter of the best answer.
•If the business combination is treated as a purchase and Sims Company"s net assets have a fair value of $228,800, Price Company"s balance sheet immediately after the combination will include goodwill of
(a) $10,200.
(b) $12,800.
(c) $11,200.
(d) $18,800.
•If the business combination is treated as a purchase and the fair value of Sims Company"s current assets is $90,000, its plant and equipment is $242,000, and its liabilities are $56,000, Price Company"s balance sheet immediately after the combination will include
(a) Negative goodwill of $36,000.
(b) Plant and equipment of $817,000.
(c) Gain of $36,000.
(d) Goodwill of $36,000.