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, 2019. on january 1, 2019, the investor company’s common stock had a traded market value of $35 per share, and the investee company’s common stock had a traded market value of $31 per share.
book values fair values
investor investee investor investee
receivables & inventories $120,000 $60,000 $108,000 $54,000
land 240,000 120,000 360,000 180,000
property & equipment 270,000 120,000 300,000 156,000
trademarks & patents — — 180,000 96,000
total assets $630,000 $300,000 $948,000 $486,000
liabilities $180,000 $96,000 $216,000 $114,000
common stock ($1 par) 24,000 12,000
additional paid-in capital 336,000 180,000
retained earnings 90,000 12,000
total liabilities & equity $630,000 $300,000
net assets $450,000 $204,000 $732,000 $372,000
required (parts a. and b. are independent of each other.)
a. assume that the investor company issued 11,400 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 financial information presented, above, 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 net assets:
receivables & inventories answer
land answer
property & equipment answer
trademarks & patents answer
investment in investee answer
goodwill answer
total assets answer
liabilities answer
common stock ($1 par) answer
additional paid-in capital answer
retained earnings answer
total liabilities and equity answer
b. assume that the investor company issued 11,400 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 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 net assets:
receivables & inventories answer
land answer
property & equipment answer
trademarks & patents answer
investment in investee answer
goodwill answer
total assets answer
liabilities answer
common stock ($1 par) answer
additional paid-in capital answer
retained earnings answer
total liabilities and equity answer