Question
In: Accounting
Clayton Company wants to purchase a manufacturing plant from a seller. The net book value of...
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.
Solutions
Expert Solution
| 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 | ||||
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