The year ended June 30, 2019, has been another successful year for ABC. The success, however, has meant that Doug, Bev, Emily, and Daniel have spent many long hours in the business accommodating their clients, both large and small. Doug and Bev have still not had much time to enjoy any of their successes and are considering retiring from the business.
The Anthony family has come to know the executives at Software Solutions, a public corporation, and at Compuhelp Limited, a private corporation. Both of these organizations have been pleased with the service and products that ABC has provided over the years. Joey Vosburgh, the president of Software Solutions, wishes to strengthen the relationship between ABC and Software Solutions. He recognizes that Doug and Bev are considering retirement. He has put forward an offer for Software Solutions to purchase all of the shares that are currently held by the Anthony family. He has also guaranteed employment to both Emily and Daniel for the next two years.
Ali Rashid, the president of Compuhelp, learned about the offer put forward by Software Solutions and is concerned that the relationship his company has developed with ABC will not be maintained if it is purchased by Software Solutions. As a result, he has offered to purchase the shares held by Doug and Bev, leaving Emily and Daniel with their 50% ownership interest and the responsibility for running the business. You will recall from Chapter 11 that 100 common shares are owned by each family member, for a total of 400 common shares.
Instructions
(a) If Software Solutions were to succeed in the offer to purchase all of the shares of ABC, describe how this investment would be accounted for, and reported, in the accounting records of Software Solutions. ABC shares do not trade in an active market. Would a change in the manner in which ABC's accounting records are maintained have to be undertaken? Why or why not?
(b) If Compuhelp were to succeed in the offer to purchase Bev and Doug's shares (50%) of ABC, describe how this investment would be accounted for in the accounting records of Compuhelp. Would a change in the manner in which ABC's accounting records are maintained have to be undertaken? Why or why not?
(c) Identify some of the advantages and disadvantages to Bev, Doug, Emily, and Daniel of each of these offers.