CFA Practice Question

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CFA Practice Question

On March 31, Jumbo purchases 100% of Larz for $7,500,000 cash and 2,200,000 shares of Jumbo voting common stock (par value of $1). Jumbo's stock had a market value on March 31 of $40. Jumbo got 12,000,000 shares of Larz's voting common stock (par value $4) having a market value of $50 per share. Jumbo incurs $5,000,000 in direct combination costs and $3,500,000 in stock issuance costs. What is Jumbo's COST for this acquisition?

A. $95,500,000.
B. $99,000,000.
C. $104,000,000.
Correct Answer: C

Cash: 7,500,000.
FMV of Stock Issued (2,200,000 x $40): 88,000,000.
Direct Combination Costs: 5,000,000.
Stock issuance costs: 3,500,000
Cost of Investment in Larz: 104,000,000.

User Contributed Comments 6

User Comment
ljamieson what is the point of mentioning par values of shares?
CFAnext well you will be given lots of information you don't need in the exam.
MonkeySee To confuse you....
vi2009 Cost of acquisition = sum of cash and equivalents paid + fv of other purchase consideration + direct cost of biz combination.
Shanax To confuse you!!!
birdperson ADD it up, ladies and gentlemen!
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