Reference no: EM132642267

Lucy's Company acquires Watervault, Inc., by issuing 40,000 shares of $1 par common stock with a market price of $25 per share on the acquisition date and paying $125,000 cash. The assets and liabilities on Watervault's balance sheet were valued at fair values except equipment that was undervalued by $300,000. There was also an unrecorded patent valued at $40,000, as well as an unrecorded trademark valued at $75,000. In addition, the agreement provided for additional consideration, valued at $60,000, if certain earnings targets were met. The pre-acquisition balance sheets for the two companies at acquisition date are presented below.

                                        Lucy's Company              Watervault, Inc.

Cash                                       $300,000                          $260,000

Accounts receivable                   250,000                                135,000

Inventory                                   254,000                             275,000

Property, plant, and equipment           2 300,000                       356,500

                                                   $3,104,000                     $1,026,500

Accounts payable                             $45,000                           $37,500

Salaries and taxes payable                  450,000                         46,000

Notes payable                                   500,000                        450,000

Common stock                                    250,000                           60,000

Additional paid-in capital                         950,000                        106,500

Retained earnings                                 909,000                         326,500

                                                           $3,104,000               $1,026.500

Question 1: Compute consolidated additional paid-in-capital.

a. $950,000

b. $1,056,500

C. $1,910,000

d. $2,016,500