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:

Question

Quizplus · Accepted Answer

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.

A Company Purchases All the Issued Shares of B Company