Question

Assume that on January 1, 2016 an investor company paid $8,700 to an investee company in exchange for the following assets and liabilities transferred from the investee company: 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.

Answer 1

If the assets and liabilities transfered from any business do not qualify as business, then they are recorded at the Purchase price (i.e., cost to investor) and not at there fair market value.

In given question, Investor company paid $8,700 in exchange of some assets and liabilities which do not qualify as a business.

Hence

Journal Entry :

1. Investee Co Dr   $8,700

To Cash/Bank $8,700

2. Assets Dr. ($8,700 - L)

To Liabilities L   

To Investee Co   $8,700

As the amount of assets and liabilities are not separately given in the question, We assume fair market value of liabilities to be L and balance i.e., ($8,700 - L) as the cost of assets

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