On December 31, 2014, Marvin issued 40,000 new shares of its $10 par value stock

Question

On December 31, 2014, Marvin issued 40,000 new shares of its $10 par value stock in exchange for all the outstanding shares of Gardner. Marvin's shares had a fair value on that date of $45 per share. Marvin paid $52,000 to an investment bank for assisting in the arrangements and $18,000 in stock issuance costs. At the time of the acquisition, the book value of Gardner's buildings was $100,000 less than the fair value. After the acquisition, Gardner will retain its incorporation. Below is information from the December 31, 2014 financial statements of Marvin Inc. and Gardner Corp. This information represents the companies just prior to their combination. Compute consolidated net income for the year ended Dec. 31, 2014 (label each component).

Explanation / Answer

Consolidated Additional Paid in capital will be $ 80,000 + ( 40,000 X (45-10)) = $1,480,000

While consolidation the Stockholder's equity ( Retained earning + Common Stock + Additional Paid-in Capita) of Subsidiary company i.e. Garden Corp.. do not appear in the consolidated balance sheet of the holding company i.e. Marvin Inc. the stock holder's Equity of subsidiary company is setoff against investment made in the subsidiary company by the Hilding company i.e. Marvin inc.

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