Assume an investor purchases an investee’s net assets with a cash payment of $1,200 and issuance to the investee’s shareholders of 240 shares of $1 par value common stock with a current fair value of $28.50 per share. In addition, we assume the purchaser paid an additional $60 of transaction costs to a third party (e.g., appraiser or broker) and provided the seller with contingent consideration with a fair value of $240 at the date of acquisition. The investee has the following net assets at current appraised fair value and historical book value: investee fair value investee book value plant and equipment 900 480 land 1260 900 patent 1440 120 total 3600 1500 a. Provide the journal entry on the investor’s books for the purchase of the individual net assets of the investee. Assume the acquired net assets do not qualify as a business. b. Provide the journal entry on the investor’s books for the purchase of the individual net assets of the investee. Assume the acquired net assets qualify as a business. c. Provide the journal entry on the investor’s books for the purchase of the investee’s business, assuming that the investor purchases the investee as a stock purchase.
Assume an investor purchases an investee’s net assets with a cash payment of $1,200 and issuance to the investee’s shareholders of 240 shares of $1 par value common stock with a current fair value of $28.50 per share. In addition, we assume the purchaser paid an additional $60 of transaction costs to a third party (e.g., appraiser or broker) and provided the seller with contingent consideration with a fair value of $240 at the date of acquisition. The investee has the following net assets at current appraised fair value and historical book value:
| investee fair value | investee book value | |
| plant and equipment | 900 | 480 |
| land | 1260 | 900 |
| patent | 1440 | 120 |
| total | 3600 | 1500 |
a. Provide the
b. Provide the journal entry on the investor’s books for the purchase of the individual net assets of the investee. Assume the acquired net assets qualify as a business.
c. Provide the journal entry on the investor’s books for the purchase of the investee’s business, assuming that the investor purchases the investee as a stock purchase.
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