Reference no: EM132473376

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.