Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2018. The book value and fair value of Vicker'
s accounts on that date (prior to creating the combination) are as follows, along with the book value of Bullen's accounts:
Bullen Book Value Vicker Book Value Vicker Fair Value
Retained earnings, 1/1/20 $250,000 $240,000
Cash and receivables 170,000 70,000 $70,000
Inventory 230,000 170,000 210,000
Land 280,000 220,000 240,000
Buildings (net) 480,000 240,000 270,000
Equipment (net) 120,000 90,000 90,000
Liabilities 650,000 430,000 420,000
Common stock 360,000 80,000
Additional paid-in capital 20,000 40,000
Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value for all of the outstanding shares of Vicker. What will be the consolidated Additional Paid-In Capital and Retained Earnings (January 1, 2018 balances) as a result of this acquisition transaction?
(A) $524,000 and $420,000.
(B) $60,000 and $250,000.
(C) $524,000 and $250,000.
(D) $60,000 and $490,000.
(E) $380,000 and $250,000.
Bullen Book Value Vicker Book Value Vicker Fair Value
Retained earnings, 1/1/20 $250,000 $240,000
Cash and receivables 170,000 70,000 $70,000
Inventory 230,000 170,000 210,000
Land 280,000 220,000 240,000
Buildings (net) 480,000 240,000 270,000
Equipment (net) 120,000 90,000 90,000
Liabilities 650,000 430,000 420,000
Common stock 360,000 80,000
Additional paid-in capital 20,000 40,000
Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value for all of the outstanding shares of Vicker. What will be the consolidated Additional Paid-In Capital and Retained Earnings (January 1, 2018 balances) as a result of this acquisition transaction?
(A) $524,000 and $420,000.
(B) $60,000 and $250,000.
(C) $524,000 and $250,000.
(D) $60,000 and $490,000.
(E) $380,000 and $250,000.
1 answer:
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Answer:
The correct option is Dana might be indifferent between C, A, and B.
Explanation:
Note: See the attached photo for the indifference curve showing points A, B and C.
The answer can be explained using an indifference curve.
An indifference curve is a graph that depicts the combination of two commodities that provide equal satisfaction or utility to the consumer. A consumer is indifferent between the two commodities at each point on an indifference curve because all points on the curve provide him with the same level of satisfaction or utility.
In the attached photo, bundles A, B and C are plotted as points on the same indifference curve (IC). Since points A, B and C are on the same IC, it therefore implies that Dana might be indifferent between C, A, and B.
Therefore, the correct option is Dana might be indifferent between C, A, and B.
