ADVANCED ACCOUNTING

Effects of qualifying as a business on asset acquisitions Assume that on January 1, 2016 an investor company paid $17,400 to an investee company in exchange for the following assets and liabilities transferred from the investee company: Investee's Estimated Fair Asset (Liability) Book Value Value Production equipment $1,800 $1,560 Factory 9,000 8,580 Land 600 Patents 3,120 2,340 In addition, the investor provided to the seller contingent consideration with a fair value of $200 and the investor paid an additional $600 of transaction costs to an unaffiliated third party. The contingent consideration has a potential settlement value of $450 in two years, and is not a derivative financial instrument. The book values are from the investee's financial records immediately before the exchange. The fair values are measured in accordance with FASB ASC 820: Fair Value Measurement Parts a. and b. are independent of each other. If no additional debit or credit entries are required, select "No entry" as the answer. a. Provide the journal entry recorded by the investor company assuming that the net assets transferred from the investee do not qualify as a "business," as that term is defined in FASB ASC Master Glossary. General Journal Description Debit Credit Production equipment 1,800 0 Factory 9,900 Land 2,700 3,600 No entry 0 Equity investment 17,800 x Contingent consideration X Cash 0 Patents 0 X 200 X b. Provide the journal entry recorded by the investor company assuming that the net assets transferred from the investee qualify as a "business," as that term is defined in FASB ASC Master Glossary. Patents 3,600 0 0 0 X 0 17,800 x No entry Equity investment Contingent consideration Cash X 0 200 x 0 0 x b. Provide the journal entry recorded by the investor company assuming that the net assets transferred from the investee qualify as a business," as that term is defined in FASB ASC Master Glossary. Credit General Journal Debit 1,560 8,580 2,340 Description Production equipment Factory Land 0 O 0 o 0 Patents 31,200 x 0 x 0 x No entry Transaction expense o o 600 > Goodwill x 2,050 x 0 x Cash 0 0 x Check