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, 2019. On January 1, 2019, the investor company’s common stock had a traded market value of $27 per share, and the investee company’s common stock had a traded market value of $20 per share. Book Values Fair Values Investor Investee Investor Investee Receivables & inventories $144,000 $72,000 $135,000 $64,800 Land 288,000 144,000 315,000 180,000 Property & equipment 324,000 144,000 360,000 187,200 Trademarks & patents — — 120,000 115,200 Total assets $756,000 $360,000 $930,000 $547,200 Liabilities $216,000 $115,200 $240,000 $123,000 Common stock ($1 par) 30,000 24,000 Additional paid-in capital 402,000 206,400 Retained earnings 108,000 14,400 Total liabilities & equity $756,000 $360,000 Net assets $540,000 $244,800 $690,000 $424,200 Assume that the investor company issued 22,500 new shares of the investor company’s common stock in exchange for 100% of the common stock of the investee company, in a transaction that qualifies as a business combination. The financial information presented, above, was prepared immediately before this transaction. Provide the Investor Company’s balance (i.e., on the investor’s books, before consolidation) for “Investment in Investee” immediately following the acquisition of the investee’s common stock: $265,800 $424,200 $450,000 $607,500

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

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, 2019. On January 1, 2019, the investor company’s common stock had a traded market value of $27 per share, and the investee company’s common stock had a traded market value of $20 per share.

	Book Values	Fair Values
	Investor	Investee	Investor	Investee
Receivables & inventories	$144,000	$72,000	$135,000	$64,800
Land	288,000	144,000	315,000	180,000
Property & equipment	324,000	144,000	360,000	187,200
Trademarks & patents	—	—	120,000	115,200
Total assets	$756,000	$360,000	$930,000	$547,200
Liabilities	$216,000	$115,200	$240,000	$123,000
Common stock ($1 par)	30,000	24,000
Additional paid-in capital	402,000	206,400
Retained earnings	108,000	14,400
Total liabilities & equity	$756,000	$360,000
Net assets	$540,000	$244,800	$690,000	$424,200

Assume that the investor company issued 22,500 new shares of the investor company’s common stock in exchange for 100% of the common stock of the investee company, in a transaction that qualifies as a business combination. The financial information presented, above, was prepared immediately before this transaction. Provide the Investor Company’s balance (i.e., on the investor’s books, before consolidation) for “Investment in Investee” immediately following the acquisition of the investee’s common stock:

$265,800

$424,200

$450,000

$607,500

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Accounting for Employee Compensations and Benefits

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions