Question

1) All of the following are differences in an asset acquisition compared to a stock acquisition except for:

A) Who the consideration is paid to by the acquiring company

B) The recognition of any gain or loss on the part of the target company

C) The valuation used to account for the value of the acquired assets and liabilities

D) The journal entries that would be made on the part of the acquiring company

2) Company ABC owns 100% of the outstanding shares of Company XYZ, and accounts for the net income of Company XYZ using the Cost Method. When Company XYZ reports quarterly Net Income of $40,000 on 6/30/18, Company ABC will:

	A) Debit Dividends Receivable and Credit Investment Income $10,000 as it’s only for a quarter of the year
	B) Company ABC will make no journal entry resulting from this transaction
	C) Debit Investment Income and Credit the Investment $40,000
	D) Debit the Investment and Credit Investment Income $40,000

Answer 1

1. The answer is option A

In both the cases consideration is paid to Target company of which assets or stock is acquired

Options b c and d is different in both cases

Option b The gains or loss determine by purchase consideration paid less carrying value of assets in assets sale while fair value of assets considered in stock sales.

Option c fair value of assets acquired ie land furniture equipment machinery is considered by buyer when valuation is done for assets acquisition while fair value of stock is considered in stock acquisitions.

Option d journal entries are same in both the case for acquiring company.

2. As the company follows cost method the investment will be shown in balance sheet at Original Cost so the investment will NOT BE CREDITED except sale of these investment or material change in fair value . The dividend received on these investments will be record as revenue income and will not affect the cost of investment.

Next is the xyz only reporting the quarterly income and not declared or paid the dividend so we can’t record the dividend income.

Thus Option B that is No journal entry require by ABC company when xyz is reporting quarterly income.