Problem: Asset acquisition vs. stock purchase (fair value equals book value)
Assume that an investor purchases the business of an investee. The fair value of the investee company is equal to its reported book value and the fair values of the individual net assets are equal to their reported book values. 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
|
Note: Parts a. and b. are independent of each other.
Required:
Part A: Provide the journal entry if the investor pays cash and purchases the assets and assumes the liabilities of the investee company.
Part B: Provide the journal entry if the investor pays cash and purchases all of the stock of the investee's shareholders.
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