**Asset Acquisition vs. Stock Acquisition (Fair Value is Different from Book Value)**The following financial statement information is for an investor company and an investee company on January 1, 2013. On January 1, 2013, the investor company's common stock had a traded market value of $17.5 per share, and the investee company's common stock had a traded market value of $15.5 per share.| | Book Values | Fair Values ||-----------------------------|-------------------------------|----------------------------------|| | Investor | Investee | Investor | Investee || **Receivables & inventories**| $50,000 | $25,000 | $45,000 | $22,500 || **Land** | $100,000 | $50,000 | $150,000 | $75,000 || **Property & equipment** | $112,500 | $50,000 | $125,000 | $65,000 || **Trademarks & patents** | - | $75,000 | - | $40,000 || **Total assets** | $262,500 | $125,000 | $395,000 | $202,500 || **Liabilities** | $75,000 | $40,000 | $90,000 | $45,000 || **Common stock ($1 par)** | $10,000 | $5,000 | - | - || **Additional paid-in capital**| $140,000 | $75,000 | - | - || **Retained earnings** | $37,500 | $5,000 | - | - || **Total liabilities & equity**| $262,500 | $125,000 | $90,000 | $45,000 || **Net assets** | $187,500 | $85,000 | $305,000 | $155,000 |**Required (Parts a. and b. are independent of each other.)**This table provides a clear comparison of the book values and fair values of assets and liabilities for both the investor and investee companies, providing essential information for ### Example of Investment Accounting and Consolidation#### Case Study AssumptionsSuppose that the investor company issued 9,500 new shares of the investor company's common stock. This issuance was in exchange for all individually identifiable assets and liabilities of the investee company. The financial information presented below was prepared immediately before the transaction. The goal is to provide the Investor Company's balances (i.e., on the investor's books, before consolidation) for the following accounts immediately following the acquisition of the investee's net assets.#### a. Pre-Consolidation Balances with Identifiable Assets and Liabilities**Given Data:**- **Receivables & Inventories:** $72,500- **Land:** $175,000- **Property & Equipment:** $0- **Trademarks & Patents:** $0- **Investment in Investee:** $0- **Goodwill:** $0\[\begin{array}{|c|c|}\hline\text{Receivables & Inventories} & \$72,500 \\ \hline\text{Land} & \$175,000 \\ \hline\text{Property & Equipment} & \$0 \\ \hline\text{Trademarks & Patents} & \$0 \\ \hline\text{Investment in Investee} & \$0 \\ \hline\text{Goodwill} & \$0 \\ \hline\text{Total Assets} & \$ \\ \hline\text{Liabilities} & \$0 \\ \hline\text{Common Stock (\$1 par)} & \$0 \\ \hline\text{Additional Paid-In Capital} & \$0 \\ \hline\text{Retained Earnings} & \$0 \\ \hline\text{Total Liabilities and Equity} & \$ \\ \hline\end{array}\]#### b. Pre-Consolidation Balances with Common Stock ExchangeAssume that the investor company issued 9,500 new shares of the investor company's common stock in exchange for all the investee company's common stock. The financial information presented below was prepared immediately before this transaction.**Given Data:**- **Receivables & Inventories:** $0- **Land:** $0- **Property & Equipment:** $0- **Trademarks & Patents:** $

A balance sheet is an accounting report that shows a corporation's assets liabilities, and…

bove, was prepared immediately before this transaction. Provide the Investor Company's balances (i.e., on the investor's books, before consolidation) for the following accounts immediately following the acquisition of the investee's ssets: Receivables & Inventories $ 72.500 175,000 and "roperty & Equipment Trademarks & Patents vestment in Investee Soodwill otal Assets iabilities Common Stock ($1 par) additional Paid-In Capital tetained Earnings otal Liabilities and Equity $ and Property & Equipment rademarks & Patents vestment in Investee Goodwill otal Assets $ iabilities Common Stock ($1 par) dditional Paid-In Capital tetained Earnings S 0 $ $ 0 0 0 0 0 Assume that the investor company issued 9,500 new shares of the investor company's common stock in exchange for all of the investee company's common stock. The financial information presented, above, was prepared immed efore this transaction. Provide the Investor Company's balances (i.e., on the investor's books, before consolidation) for the following accounts immediately following the acquisition of the investee's net assets: Receivables & Inventories $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

bove, was prepared immediately before this transaction. Provide the Investor Company's balances (i.e., on the investor's books, before consolidation) for the following accounts immediately following the acquisition of the investee's ssets: Receivables & Inventories $ 72.500 175,000 and "roperty & Equipment Trademarks & Patents vestment in Investee Soodwill otal Assets iabilities Common Stock ($1 par) additional Paid-In Capital tetained Earnings otal Liabilities and Equity $ and Property & Equipment rademarks & Patents vestment in Investee Goodwill otal Assets $ iabilities Common Stock ($1 par) dditional Paid-In Capital tetained Earnings S 0 $ $ 0 0 0 0 0 Assume that the investor company issued 9,500 new shares of the investor company's common stock in exchange for all of the investee company's common stock. The financial information presented, above, was prepared immed efore this transaction. Provide the Investor Company's balances (i.e., on the investor's books, before consolidation) for the following accounts immediately following the acquisition of the investee's net assets: Receivables & Inventories $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

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Chapter1: Financial Statements And Business Decisions

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Concept explainers

Bookkeeping

Bookkeeping is the process of recording the financial transactions of a company on a regular basis. With the process of bookkeeping, companies can track important financial information that helps management in making crucial decisions.

Question

**Asset Acquisition vs. Stock Acquisition (Fair Value is Different from Book Value)**

The following financial statement information is for an investor company and an investee company on January 1, 2013. On January 1, 2013, the investor company's common stock had a traded market value of $17.5 per share, and the investee company's common stock had a traded market value of $15.5 per share.

| | Book Values | Fair Values |
|-----------------------------|-------------------------------|----------------------------------|
| | Investor | Investee | Investor | Investee |
| **Receivables & inventories**| $50,000 | $25,000 | $45,000 | $22,500 |
| **Land** | $100,000 | $50,000 | $150,000 | $75,000 |
| **Property & equipment** | $112,500 | $50,000 | $125,000 | $65,000 |
| **Trademarks & patents** | - | $75,000 | - | $40,000 |
| **Total assets** | $262,500 | $125,000 | $395,000 | $202,500 |
| **Liabilities** | $75,000 | $40,000 | $90,000 | $45,000 |
| **Common stock ($1 par)** | $10,000 | $5,000 | - | - |
| **Additional paid-in capital**| $140,000 | $75,000 | - | - |
| **Retained earnings** | $37,500 | $5,000 | - | - |
| **Total liabilities & equity**| $262,500 | $125,000 | $90,000 | $45,000 |
| **Net assets** | $187,500 | $85,000 | $305,000 | $155,000 |

**Required (Parts a. and b. are independent of each other.)**

This table provides a clear comparison of the book values and fair values of assets and liabilities for both the investor and investee companies, providing essential information for

### Example of Investment Accounting and Consolidation

#### Case Study Assumptions

Suppose that the investor company issued 9,500 new shares of the investor company's common stock. This issuance was in exchange for all individually identifiable assets and liabilities of the investee company. The financial information presented below was prepared immediately before the transaction. The goal is to provide the Investor Company's balances (i.e., on the investor's books, before consolidation) for the following accounts immediately following the acquisition of the investee's net assets.

#### a. Pre-Consolidation Balances with Identifiable Assets and Liabilities

**Given Data:**

- **Receivables & Inventories:** $72,500
- **Land:** $175,000
- **Property & Equipment:** $0
- **Trademarks & Patents:** $0
- **Investment in Investee:** $0
- **Goodwill:** $0

\[
\begin{array}{|c|c|}
\hline
\text{Receivables & Inventories} & \$72,500 \\ \hline
\text{Land} & \$175,000 \\ \hline
\text{Property & Equipment} & \$0 \\ \hline
\text{Trademarks & Patents} & \$0 \\ \hline
\text{Investment in Investee} & \$0 \\ \hline
\text{Goodwill} & \$0 \\ \hline
\text{Total Assets} & \$ \\ \hline
\text{Liabilities} & \$0 \\ \hline
\text{Common Stock (\$1 par)} & \$0 \\ \hline
\text{Additional Paid-In Capital} & \$0 \\ \hline
\text{Retained Earnings} & \$0 \\ \hline
\text{Total Liabilities and Equity} & \$ \\ \hline
\end{array}
\]

#### b. Pre-Consolidation Balances with Common Stock Exchange

Assume that the investor company issued 9,500 new shares of the investor company's common stock in exchange for all the investee company's common stock. The financial information presented below was prepared immediately before this transaction.

**Given Data:**

- **Receivables & Inventories:** $0
- **Land:** $0
- **Property & Equipment:** $0
- **Trademarks & Patents:** $

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