Asked by Nastassja Locklear on Jun 23, 2024
Verified
A company purchases all the issued shares of B company for $2 000 000.The net assets of B Company consist of land $2,100 000 and a liability of $100 000.A company will record the acquisition as follows:
A) DR Land $2 100 000
CR Liability $100 000
CR Cash $2 000 000
B) DR Shares in B $2 000 000
CR Issued Capital $2 000 000
C) DR Shares in B $2 000 000
CR Cash $2 000 000
D) none of the above
Issued Shares
Shares that have been allocated to shareholders by a company, representing ownership in the company.
Net Assets
Net assets represent the total assets of a company minus its total liabilities, indicating the actual value of a company’s equity held by shareholders.
Acquisition
The process by which one company takes over another company either by purchasing its assets or its stock.
- Comprehend the processes and strategies for procuring another business, encompassing the acquisition of assets, liabilities, or issued shares.
- Comprehend the core concepts and ramifications of valuing all assets secured in a business consolidation at market value.
Verified Answer
DA
Dhruv AgheraJun 27, 2024
Final Answer :
C
Explanation :
When a company purchases all the issued shares of another company, the acquiring company records the purchase as an investment in shares at the cost of acquisition. Therefore, the correct entry is to debit the investment in shares (Shares in B) and credit cash, reflecting the outflow of cash to acquire the shares.
Learning Objectives
- Comprehend the processes and strategies for procuring another business, encompassing the acquisition of assets, liabilities, or issued shares.
- Comprehend the core concepts and ramifications of valuing all assets secured in a business consolidation at market value.