Question : 1. Pizza purchased 100% of the net assets of Submarine : 3598
1. Pizza purchased 100% of the net assets of Submarine Company in an “Asset Acquisition.” Pizza paid $5 million for Submarine Company. Submarine Company had identifiable net assets of $3.5 million.
The difference of $1.5 million will be accounting for as:
A. Ordinary Gain
B. Bargain Purchase
D. Other Assets
2. The following is the list of assets and liabilities of Submarine Company
Book Value Fair Value
Account Receivable 1,400,000 1,350,000
Inventory 500,000 600,000
Plant and Equipment 750,000 1,900,000
Accounts Payable 100,000 150,000
Mortgage Payable 200,000 200,000
Complete the journal entry to record the asset acquisition
3 If Pizza Co. had instead purchased Submarine through a “Stock Acquisition” (purchased 100% of Submarine Stock) the journal entry to record the stock acquisition would be as follows:
Stock Acquisition Debit Credit
Investment subsidiary 5,000,000
4. (Stock Acquisition) The current method of accounting for a stock acquisition is more aligned with Parent Company Concept versus the Economic Unit Concept.
5. (Stock Acquisition) Noncontrolling interest represents the equity position of the subsidiary shareholders who continue to hold stock (did not sell their ownership) in the subsidiary.