Effects of qualifying as a business on asset acquisitions Assume that on January 1, 2016 an investor company paid $8,700 to an investee company in exchange for the following assets and liabilities transferred from the investee company: Investee's Estimated Fair Asset (Liability) Production equipment Book Value Value $900 $780 4,500 300 4,290 1,170 1,560 Factory Land Patents In addition, the investor provided to the seller contingent consideration with a fair value of $200 and the investor paid an additional $300 of transaction costs to an unaffiliated third party. The contingent consideration has a potential settlement value of $450 in two years, and is not a derivative financial instrument. The book values are from the investee's financial records immediately before the exchange. The fair values are measured in accordance with FASB ASC 820: Fair Value Measurement. Parts a. and b. are independent of each other. If no additional debit or credit entries are required, select "No entry" as the answer. a. Provide the journal entry recorded by the investor company assuming that the net assets transferred from the investee do not qualify as a "business," as that term is defined in FASB ASC Master Glossary. General Journal Description Production equipment Debit 900 Credit 0 Factory 4,500 0 Land Patents 300 0 3,000 0 No entry 0 0 No entry ÷ 0 0 No entry 4 0 Cash 0 0 8,700 b. Provide the journal entry recorded by the investor company assuming that the net assets transferred from the investee qualify as a "business," as that term is defined in FASB ASC Master Glossary. General Journal Description Production equipment Debit Credit 780 0 Factory 4,290 0 Land 1,170 0 Patents 1,560 0 Goodwill 800 0 Transaction expense 300 0 Contingent consideration + 0 200 Cash 0 8,700
Effects of qualifying as a business on asset acquisitions Assume that on January 1, 2016 an investor company paid $8,700 to an investee company in exchange for the following assets and liabilities transferred from the investee company: Investee's Estimated Fair Asset (Liability) Production equipment Book Value Value $900 $780 4,500 300 4,290 1,170 1,560 Factory Land Patents In addition, the investor provided to the seller contingent consideration with a fair value of $200 and the investor paid an additional $300 of transaction costs to an unaffiliated third party. The contingent consideration has a potential settlement value of $450 in two years, and is not a derivative financial instrument. The book values are from the investee's financial records immediately before the exchange. The fair values are measured in accordance with FASB ASC 820: Fair Value Measurement. Parts a. and b. are independent of each other. If no additional debit or credit entries are required, select "No entry" as the answer. a. Provide the journal entry recorded by the investor company assuming that the net assets transferred from the investee do not qualify as a "business," as that term is defined in FASB ASC Master Glossary. General Journal Description Production equipment Debit 900 Credit 0 Factory 4,500 0 Land Patents 300 0 3,000 0 No entry 0 0 No entry ÷ 0 0 No entry 4 0 Cash 0 0 8,700 b. Provide the journal entry recorded by the investor company assuming that the net assets transferred from the investee qualify as a "business," as that term is defined in FASB ASC Master Glossary. General Journal Description Production equipment Debit Credit 780 0 Factory 4,290 0 Land 1,170 0 Patents 1,560 0 Goodwill 800 0 Transaction expense 300 0 Contingent consideration + 0 200 Cash 0 8,700
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Effects of qualifying as a business on asset acquisitions
Assume that on January 1, 2016 an investor company paid $8,700 to an investee company in exchange for the following assets and liabilities transferred from the investee company:
Investee's Estimated Fair
Asset (Liability)
Production equipment
Book Value
Value
$900
$780
4,500
300
4,290
1,170
1,560
Factory
Land
Patents
In addition, the investor provided to the seller contingent consideration with a fair value of $200 and the investor paid an additional $300 of transaction costs to an unaffiliated third party. The contingent consideration has a potential settlement value of $450 in two years, and
is not a derivative financial instrument. The book values are from the investee's financial records immediately before the exchange. The fair values are measured in accordance with FASB ASC 820: Fair Value Measurement.
Parts a. and b. are independent of each other.
If no additional debit or credit entries are required, select "No entry" as the answer.
a. Provide the journal entry recorded by the investor company assuming that the net assets transferred from the investee do not qualify as a "business," as that term is defined in FASB ASC Master Glossary.
General Journal
Description
Production equipment
Debit
900
Credit
0
Factory
4,500
0
Land
Patents
300
0
3,000
0
No entry
0
0
No entry
÷
0
0
No entry
4
0
Cash
0
0
8,700
b. Provide the journal entry recorded by the investor company assuming that the net assets transferred from the investee qualify as a "business," as that term is defined in FASB ASC Master Glossary.
General Journal
Description
Production equipment
Debit
Credit
780
0
Factory
4,290
0
Land
1,170
0
Patents
1,560
0
Goodwill
800
0
Transaction expense
300
0
Contingent consideration +
0
200
Cash
0
8,700
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