Question

Sayon Co. issues 200,000 shares of $5 par value common stock to acquire Trask Co. in an acquisitionbusinesscombination. The market value of Sayon's common stock is $12. Legal and consulting feesincurred in relationship to the purchase are $110,000. Registration and issuance costs for the common stockare $35,000. What should be recorded in Sayon's additional paid-in capital account for this businesscombination?a. $1,545,000b. $1,400,000c. $1,365,000d. $1,255,000

Answer 1

Answer:

option (c) $1,365,000

Explanation:

Given;

Number of shares issued = 200,000

Par value of the common stock = $5

Market value of the common stocks= $12

Legal and consulting fees = $110,000

Registration and issuance costs for the common stock = $35,000

Now,

The par value of the stocks

= Number of shares issued × Par value of the stocks

on substituting the respective values, we have

= 200,000 × $5

= $1,000,000

and, the Market value of the stocks

= Number of shares issued × Market value of the stocks

on substituting the respective values, we have

= 200,000 × $12

= $2,400,000

Therefore,

the net additional paid in cash

= Market value of the stocks - par value of the stocks - Registration and issuance costs

on substituting the respective values, we have

= $2,400,000 - $1,000,000 - $35,000

= $1,365,000

The legal and the consulting fees is not included above because they are paid in cash.

Hence, the correct answer is option (c) $1,365,000