[Will]

Wiley Question –

This question seems to be simple, but I am still not clear.

on 8/31/Y1, W issued 100k shares of $20 par value common stock for the net assets of P in a business combination accounted by acquisition method. The market value of W’s common stock on 8/31 was $36 per share. W paid a consulting fee of $160k for the acquisition. Cost of registering/issuing equity amounted to $80k. No goodwill was involved. what amount should Wood capitalize as the cost of acquiring P’s net assets?

The answer is 3600k.

I know the 160k shall be expensed. But how about the 80k? it needs to be netted against proceeds from equity, right? The answer says 80k should be treated as a reduction of API capital. BUt I don’t see how that is incorporated to the 3600k

[NYCaccountant]

Does this entry make sense?

Investment Dr. 3,600,000 The amount capitalized is the same.

Common Stock Cr. 2,000,000

Additional Paid in capital Cr. 1,600,000

To Record original purchase

Additional paid in capital Dr. 80,000

Cash Cr. 80,000

To Record registration/ issue costs of common stock.

I have not gotten to to business combinations in Wiley yet, but this seems right to me. Just taking a shot

at answering the question I guess.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Will]

thx, I believe the entries are correct.

So even there is only 3600k-80k for common stock and API capital after the 80k was netted against proceeds from equity, the amount that is actually capitalized is still 3600K, equal to the investment amount.

[Anonymous]

i firmly believe it is 3600k-80k too, but i think it's how they asked the question

what amount should Wood CAPITALIZE as the cost of acquiring P's net assets?

so it's not asking about APIC, because if it is it would specifically ask that. regardless, the investment in this account would be 3,600,000.

i think these questions become kinda mindscrewing after awhile 🙁 hope they are clear on the exams because misinterpreting the question is the worst… :

[Author]

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