On January 1, 2013, Nichols Company Acquired 80% of Smith

Multiple Choice

On January 1, 2013, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: $\begin{array}{l}\text { Common stock, } \$ 10 \text { par value }(50,000 \text { shares outstanding }) &\$500,000\\\text { Preferred stock, } 6 \% \text { cumulative, } \$ 100 \text { par value, }\\3,000 \text { shares outstanding } & 300,000 \\\text { Additional paid in capital } & 200,000 \\\text { Retained earnings } & 500,000\\\text { Total stockholders' equity }&\$1,500,000\end{array}$ The consolidation entry at date of acquisition will include (referring to Smith) :

A) Debit Common stock $500,000 and debit Preferred stock $120,000.
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000.
C) Debit Common stock $500,000 and debit Preferred stock $300,000.
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000.
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.