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I have a question with regards to a specific Wiley FAR MCQ. This one has me stumped.
On January 1, year 2, Neel Corp. issued 400,000 additional shares of $10 par value common stock in exchange for all of Pym Corp.’s common stock. Immediately before this business combination, Neel’s stockholders’ equity was $16,000,000 and Pym’s stockholders’ equity was $8,000,000. On January 1, year 2, the fair value of Neel’s common stock was $20 per share, and the fair value of Pym’s net assets was $8,000,000. Neel’s net income for the year ended December 31, year 2, exclusive of any consideration of Pym, was $2,500,000. Pym’s net income for the year ended December 31, year 2, was $600,000. During year 2 Neel paid dividends of $900,000. Neel had no business transactions with Pym in year 2.
My answer is $17.6M or $16M+$2.5M-$900K.
Wiley says the correct answer also includes the $8M stockholder’s equity of subsidiary + $600K for a total of $26.2M. Isn’t this double-counting? Is there something unique to this multiple choice problem?
Thanks.
BEC = 72 (6/08/16)
FAR = ?
REG = ?
AUD = ?
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