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Asset acquisition vs. stock purchase (fair value differs book value)
Assume an investor purchases the net assets of an investee for the cash purchase price is $75,600. The investor is willing to purchase the investee's business for this amount because the fair value of PPE is $70,560 and the fair value of a (previously unrecognized) customer list is $15,120 (the fair values of all other assets and liabilities are equal to their book values). The investee company reports the following balance sheet on the acquisition date:
Cash
$5,040 Accounts payable
$10,080
Accounts receivable
10,080 Accrued liabilities
15,120
Inventories
20,160
Current assets
35,280
Current liabilities
25,200
Long-term liabilities
PPE, net
50,400
Stockholders' equity
40,320
Total assets
$85,680
Total liabilities & equity
Question a. Provide the journal entry if the investor purchases the assets and assumes the liabilities of the investee company.
Question b. Provide the journal entry if the investor purchases all of the stock of the investee's shareholders.
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