Reference no: EM132470774

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	20,160
PPE, net	50,400	Stockholders' equity	40,320
Total assets	$85,680	Total liabilities & equity	$85,680

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.