On January 1, 2018, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: Common stock, $10 par value (50,000 shares outstanding)$500,000 Preferred stock, 6% cumulative, $100 par value, 3,000 shares outstanding 300,000 Additional paid in capital 200,000 Retained earnings 500,000 Total stockholders' equity$1,500,000 ?With respect to Nichols' investment in Smith, determine the amount to be recorded and

Question

identify which account should be adjusted to reflect such amount.

A. $1,324,000 for Investment in Smith.
B. $1,200,000 for Investment in Smith.
C. $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock.
D. $1,448,000 for Investment in Smith's Common Stock.
E. $1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock.

Answer 1

Answer: C