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Effects of qualifying as a business on asset acquisitions Assume that on January 1, 2016 an investor company paid $11,600 to an investee company in
Effects of qualifying as a business on asset acquisitions Assume that on January 1, 2016 an investor company paid $11,600 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 $1,200 $1,040 Factory 6,000 5,720 Land 400 1,560 Patent 2,080 In addition, the investor provided to the seller contingent consideration with a fair value of $200 and the investor paid an additional $400 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. 0 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. General Journal Description Debit Credit Production equipment 1,040 0 Factory 5,720 Land 1,560 0 Patents 2,080 0 Goodwill OX 0 Transaction expense 400 0 Contingent consideration 0 x Cash 12,000 0 0
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