Question
Asset acquisition vs. stock purchase (fair value equals book value) Assume that an investor purchases the business of an investee. The investee company reports the
Asset acquisition vs. stock purchase (fair value equals book value) Assume that an investor purchases the business of an investee. The investee company reports the following balance sheet on the acquisition date:
Cash | $2,800 | Accounts payable | $5,600 |
Accounts receivable | 5,600 | Accrued liabilities | 8,400 |
Inventories | 11,200 | - | |
Current assets | 19,600 | Current liabilities | 14,000 |
Long-term liabilities | 11,200 | ||
PPE, net | 28,000 | Stockholders equity | 22,400 |
Total assets | $47,600 | Total liabilities and equity | $47,600 |
Parts a. and b. are independent of each other.
a. Provide the journal entry if the investor pays cash and purchases the assets and assumes the liabilities of the investee company (assume that the fair value of the assets is equal to their book values).
If no additional debit entries are required, select "No entry" as the answer.
General Journal | ||
---|---|---|
Description | Debit | Credit |
Cash | Answer | Answer |
Accounts receivable | Answer | Answer |
Inventories | Answer | Answer |
PPE, net | Answer | Answer |
AnswerCashEquity investmentGoodwillInvestee's stockholder's equityNo entry | Answer | Answer |
Accounts payable | Answer | Answer |
Accrued liabilities | Answer | Answer |
Long-term liabilities | Answer | Answer |
AnswerCashEquity investmentGoodwillInvestee's stockholder's equityNo entry | Answer | Answer |
b. Provide the journal entry if the investor pays cash and purchases all of the stock of the investees shareholders.
General Journal | ||
---|---|---|
Description | Debit | Credit |
AnswerCashEquity investmentGoodwillInvestee's stockholder's equityNo entry | Answer | Answer |
AnswerCashEquity investmentGoodwillInvestee's stockholder's equityNo entry | Answer | Answer |
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