Question

On December 31, 2020, Orange Company issued 30,000 shares of its common stock with a fair value of $50 per share for all of the outstanding common shares of June Company. Stock issuance costs of $4,000 and direct costs of $1,000 were paid. In addition, Orange promised to pay an additional $5,200 to the former owners of Jones earnings exceed a certain amount during the next year. The fair value of the potential obligation is estimated at $3,000. Compute the investment to be recorded at date of acquisition.

Answer 1

Answer:

$1,503,000

Explanation:

Investment to be recorded at date of acquisition:

Fair Value of shares (30000*$50/share) = $1,500,000

Add: Fair Value of potential obligation =    $3,000        

Investment at date of acquisition              $1,503,000