Reference no: EM131210573

Price Company issued 8,000 shares of its $20 par value common stock for the net assets of Sims Company in a business combination under which Sims Company will be merged into Price Company.

On the date of the combination, Price Company common stock had a fair value of $30 per share. Balance sheets for Price Company and Sims Company immediately prior to the combination were:

		Price	Sims
Current assets		$ 438,000	$ 64,000
Plant and equipment (net)		575,000	136,000
Total		$1,013,000	$200,000
Liabilities		$ 300,000	$ 50,000
Common stock, $20 par value		550,000	80,000
Other contributed capital		72,500	20,000
Retained earnings		90,500	50,000
Total		$1,013,000	$200,000

Required:

Select the letter of the best answer.

•If the business combination is treated as a purchase and Sims Company"s net assets have a fair value of $228,800, Price Company"s balance sheet immediately after the combination will include goodwill of
(a) $10,200.
(b) $12,800.
(c) $11,200.
(d) $18,800.

•If the business combination is treated as a purchase and the fair value of Sims Company"s current assets is $90,000, its plant and equipment is $242,000, and its liabilities are $56,000, Price Company"s balance sheet immediately after the combination will include
(a) Negative goodwill of $36,000.
(b) Plant and equipment of $817,000.
(c) Gain of $36,000.
(d) Goodwill of $36,000.