5)On January 1, 2017, Pacer Company paid $1,920,000 for 60,000 shares of Lennon

Question

5)On January 1, 2017, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.'s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was made. Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $2.50 per share during 2017 and reported net income of $670,000. What was the balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 2017?
A. $2,040,500.
B. $2,071,500.
C. $2,260,500.
D. $2,171,500.
E. $2,120,500.

6)

On May 1, 2017, Pepper Company issues 30,000 shares of its $12 par value ($25 fair value) common stock in exchange for all of the shares of Salt's common stock. Pepper paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Pepper has $700,000 in its common stock account and $300,000 in its additional paid-in capital account.

What will be Pepper's balance in its common stock account as a result of this acquisition?

A. $360,000.

B. $700,000.

C. $1,050,000.
D. $1,060,000.
E. $1,450,000.

Explanation / Answer

5) Cost of acquisition of the shares 1920000 Add: Share of net income = 670000*45% = 301500 Less: Dividend received = 60000*2.5 = -150000 Balance in investment account as of December 31, 2017 2071500 Answer: Option B 6) Initial common stock value 700000 Par value of 30000 shares issued to acquire common stock of Salt = 30000*12 = 360000 Pepper's balance in common stock account 1060000 Answer: Option D

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