Assume that an investor purchases the business of an investe. The investee company reports the following balance
Question:
Assume that an investor purchases the business of an investe. 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 |
Parts a. and b. are independent of each other.
a. Provide the journal entry if the investor pays cash and purchases the assets and assumes the liabilities of the investee company (assume that the fair value of the assets is equal to their book values).
If no additional debit entries are required, select "No entry" as the answer.
General Journal | ||
Description | Debit | Credit |
Cash | Answer | Answer |
Accounts receivable | Answer | Answer |
Inventories | Answer | Answer |
PPE, net | Answer | Answer |
Answer Cash Equity investment Goodwill Investee's stockholder's equity No entry | Answer | Answer |
Accounts payable | Answer | Answer |
Accrued liabilities | Answer | Answer |
Long-term liabilities | Answer | Answer |
Answer Cash Equity investment Good will Investee's stockholder's equity No entry | Answer | Answer |
b. Provide the journal entry if the investor pays cash and purchases all of the stock of the investee’s shareholders.
General Journal | ||
Description | Debit | Credit |
Answer Cash Equity investment Goodwill Investee's stockholder's equity No entry | Answer | Answer |
Answer Cash Equity investment Good will Investee's stockholder's equity No entry | Answer | Answer |
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk