Judd Company issued nonvoting preferred stock with a fair value of $1,500,000 in exchange for all the outstanding common stock of the Bath Corporation. On the date of the exchange, Bath had tangible net assets with a book value of $900,000 and a fair value of $1,400,000. In addition, Judd issued preferred stock valued at $100,000 to an individual as a finder's fee for arranging the transaction. As a result of these transactions, Judd should report an increase in net assets of ____.
A) $900,000
B) $1,400,000
C) $1,500,000
D) $1,600,000

Question

Quizplus · Accepted Answer

The fair value of the preferred stock issued to Bath's shareholders is $1,500,000, which is equal to the book value of Bath's tangible net assets. The fair value of Bath's tangible net assets is $1,400,000, which is greater than the book value. Therefore, Judd should report an increase in net assets of $100,000 ($1,500,000 - $1,400,000).

Judd Company Issued Nonvoting Preferred Stock with a Fair Value