On April 1, 2015, Paxton Corporation acquired all of the outstanding voting common stock of Stanley Company and Stanley will remain a separate corporation. Stanley's year-end is December 31. How should the assets and liabilities of Stanley be reported on the consolidated financial statements when Stanley is combined with Paxton on April 1, 2015?
A) At book values at the April 1, 2015 date of acquisition.
B) At fair values at the April 1, 2015 date of the acquisition.
C)At book values at December 31, 2014.
D)At fair values at December 31, 2014 less accumulated depreciation calculated on the difference between book and fair values since that date.

Question

Quizplus · Accepted Answer

When acquiring another company, the assets and liabilities should be reported at fair value at the date of acquisition. This is in accordance with the acquisition method of accounting, which requires the acquirer to record the acquired assets and liabilities at their fair values on the date of acquisition. Book values may not reflect the true fair value of the assets and liabilities at the time of acquisition. Option A is not correct because using book values at the date of acquisition may not result in accurate reporting of the financial position of the consolidated entity. Option C and D are not correct because they do not reflect the fair value of the assets and liabilities at the date of acquisition.

On April 1, 2015, Paxton Corporation Acquired All of the Outstanding