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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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