Effects of qualifying as a business on asset acquisitions As

Effects of qualifying as a business on asset acquisitions Assume that on January 1, 2016 an investor company paid $14,500 to an investee company in exchange for the following assets and liabilities transferred from the investee company: Investee\'s Estimated Fair Asset (Liability) Value Book Value $1,500 7,500 500 $1,300 7,150 1,950 Production equipment Patents Accrued liabilites (650) In addition, assume that the investor paid an additional $500 of transaction costs to a third party. 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 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 Debit Credit Production equipment Patents

Solution

a. Investee do not qualify as a business 1. Production Equipment 1300 Factory 7150 Land 1950 Patents 3250 Loss on acquisition 2000 Accrued Liabilities 650 Cash(14500+500) 15000 b. Investee qualifies as a business 1. Production Equipment 1300 Factory 7150 Land 1950 Patents 3250 Goodwill 1500 Accrued Liabilities 650 Cash 14500 2. Transaction costs 500 Cash 500