Question 28: On January 1, 2018, 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. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is:

Common stock, $10 par value (50,000 shares outstanding)	$	500,000
Preferred stock, 6% cumulative, $100 par value, 3,000 shares outstanding		300,000
Additional paid in capital		200,000
Retained earnings		500,000
Total stockholders' equity	$	1,500,000

With respect to Nichols' investment in Smith, determine the amount to be recorded and identify which account should be adjusted to reflect such amount.

$1,448,000 for Investment in Smith's Common Stock.

$1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock.

$1,200,000 for Investment in Smith.

$1,324,000 for Investment in Smith.

$1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock.