A Company purchases the net assets of B Company,which consists of land $2 100 000 and a liability of $100 000,paying by issuing 2 000 000 x $1,which is the fair value of the shares in A Company.A Company will record the acquisition as follows:
A) $\begin{array} { l l }
\text { DR Investment in B } & \$ 2,000,000 \
\text { CR Issued Capital } & \$ 2,000,000
\end{array}$
B) $\begin{array} { l l }
\text { DR Land } & \$ 2,100,000 \
\text { CR Liability } & \$ 100,000 \
\text { CR Cash } & \$ 2,000,000
\end{array}$
C) $\begin{array} { l l }
\text { DR Land } & \$ 2,100,000 \
\text { CR Liability } & \$ 100,000 \
\text { CR Issued Capital } & \$ 2,000.000
\end{array}$
D) none of the above

Question

A Company purchases the net assets of B Company,which consists of land $2 100 000 and a liability of $100 000,paying by issuing 2 000 000 x $1,which is the fair value of the shares in A Company.A Company will record the acquisition as follows: 
A) $\begin{array} { l l } 
\text { DR Investment in B } & \$ 2,000,000 \
\text { CR Issued Capital } & \$ 2,000,000
\end{array}$
B) $\begin{array} { l l } 
\text { DR Land } & \$ 2,100,000 \
\text { CR Liability } & \$ 100,000 \
\text { CR Cash } & \$ 2,000,000
\end{array}$
C) $\begin{array} { l l } 
\text { DR Land } & \$ 2,100,000 \
\text { CR Liability } & \$ 100,000 \
\text { CR Issued Capital } & \$ 2,000.000
\end{array}$
D) none of the above

Quizplus · Accepted Answer

In an acquisition where a company purchases the net assets of another company, the acquiring company records the assets acquired and liabilities assumed at their fair values. In this case, A Company acquires land worth $2,100,000 and assumes a liability of $100,000. The payment is made by issuing shares valued at $2,000,000. Therefore, the correct journal entry is to debit Land for the value of the land acquired, credit Liability for the liability assumed, and credit Issued Capital for the value of the shares issued in exchange. This reflects the acquisition of net assets and the issuance of shares as payment.