Question

Ticasso Co. issued 5,000 shares of its $1 par common stock, valued at $100,000, to acquire shares of Eurat Company in an all-stock transaction. Ticasso paid the investment bankers $35,000 and will treat the investment banker fee asA) an expense for the current year.B) a prior period adjustment to Retained Earnings.C) additional goodwill on the consolidated balance sheet.D) a reduction to additional paid-in capital.

Answer 1

Answer:

D) a reduction to additional paid-in capital.

Explanation:

The investment banker fee is taking from the 100,000 dollars before purchasing Eurat Company shares thus, we purchase shares for:

proceeds from sales 100,000 - banker fees 35,000 = 65,000 net proceeds to purchase Eurat Company

the face value of the stock is 5,00 0shares x $1 = 5,000

additional paid-in $65,000 - $5,000 = $60,000

The journal entry will be:

Eurat company investment   65,000

                 common stock                      5,000

                additional paid-in                 60,000

A lower fee would increase the available for investment and additional paid-in as common stock cannot increase higher than the face value

this makes option D correct.