Asset acquisition (fair value equals book value) Assume that on January 1, 2019, the investor company issued 10,000 new shares of the investor company’s common stock in exchange for all of the individually identifiable assets and liabilities of the investee company. The investee company qualifies as a business. Fair value approximates book value for all of the investee’s identifiable net assets. The transaction resulted in no goodwill or bargain purchase gain. The following financial statement information is for an investor company and an investee company on January 1, 2019, prepared immediately before this transaction. Book Values Investor Investee Receivables & inventories $160,000 $80,000 Land 320,000 160,000 Property & equipment 360,000 160,000 Total assets $840,000 $400,000 Liabilities $240,000 $120,000 Common stock ($1 par) 32,000 16,000 Additional paid-in capital 440,000 194,000 Retained earnings 128,000 70,000 Total liabilities & equity $840,000 $400,000 Net assets $600,000 $280,000 Provide the investor company’s balance (i.e., on the investor’s books, before consolidation) for an “Investment in Investee” account immediately following the acquisition of the investee’s net assets: $0 $280,000 $600,000 $840,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Asset acquisition (fair value equals book value)

Assume that on January 1, 2019, the investor company issued 10,000 new shares of the investor company’s common stock in exchange for all of the individually identifiable assets and liabilities of the investee company. The investee company qualifies as a business. Fair value approximates book value for all of the investee’s identifiable net assets. The transaction resulted in no goodwill or bargain purchase gain. The following financial statement information is for an investor company and an investee company on January 1, 2019, prepared immediately before this transaction.

	Book Values
	Investor	Investee
Receivables & inventories	$160,000	$80,000
Land	320,000	160,000
Property & equipment	360,000	160,000
Total assets	$840,000	$400,000
Liabilities	$240,000	$120,000
Common stock ($1 par)	32,000	16,000
Additional paid-in capital	440,000	194,000
Retained earnings	128,000	70,000
Total liabilities & equity	$840,000	$400,000
Net assets	$600,000	$280,000

Provide the investor company’s balance (i.e., on the investor’s books, before consolidation) for an “Investment in Investee” account immediately following the acquisition of the investee’s net assets:

$280,000

$600,000

$840,000

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