Question

Clayton Company wants to purchase a manufacturing plant from a seller. The net book value of the manufacturing plant on the books of the seller is $200,000. To fund the purchase, Clayton has issued 10,000 shares of common stock at a par value of $10 per share and a market value of $35 per share, along with $20,000 from its existing cash balances.

Which of the following is INCORRECT based on the above information?

A Upon purchasing the manufacturing plant, Clayton’s Property, Plant and Equipment (PP&E) account will increase by $370,000.

B Upon selling the manufacturing plant, the seller’s retained earnings will increase by $150,000.

C Upon selling the manufacturing plant, the seller’s PP&E account will decrease by $200,000.

D Upon issuing stock, Clayton’s Stockholders' equity will increase by $350,000.

E Upon selling the manufacturing plant, seller’s cash account will increase by $370,000.

Answer 1

	From the given information, we could find the below :-
	Upon on Selling the Seller PP&E balance will decrease by $ 200,000 /-
	Upon issuing common stock, Clayton stockholders equity will increase by $ 350,000 /-
	Upon purchasing, Claytons PP&E will increase by $ 370,000 /- (350000+20000)
	Upon selling , Sellers cash account will increase by $ 370,000/-
	Upon selling , Sellers retained earnings will increase by $ 170,000 (370000-200000)
	Answer is Option B) statement is incorrect