Question

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):

	Campbell				Newton
Revenues	$	2,600			$	700
Expenses		1,880				400
Net income	$	720			$	300
Retained earnings, 1/1	$	2,400			$	500
Net income		720				300
Dividends		(270	)			0
Retained earning, 12/31	$	2,850			$	800
Cash	$	240			$	230
Receivables and inventory		1,200				360
Buildings (net)		2,700				650
Equipment (net)		2,100				1,300
Total assets	$	6,240			$	2,540
Liabilities	$	1,500			$	720
Common stock		1,080				400
Additional paid-in capital		810				620
Retained earnings		2,850				800
Total liabilities & stockholders' equity	$	6,240			$	2,540

On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton’s common stock. At the time of the transaction, Campbell’s common stock had a fair value of $40 per share.

In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton’s equipment was actually worth $1,450 but its buildings were only valued at $590.

Assuming that Newton retains a separate corporate existence after this acquisition, at what amount is the investment recorded on Campbell’s books?

Multiple Choice

• $1,055.

• $1,000.

• $2,050.

• $2,105.

• $1,995.

Answer 1

Obtain loan used to the proceeds	650
Fair value of common stock (35*40)	1,400
Total consideration	2,050
Investment recorded on Campbell’s books	2,050
Loan obtain used the proceed and fair value of common stock are considered for total consideration.