On April 1, 2017, 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, 2017?

Question

Quizplus · Accepted Answer

When acquiring a company, the assets and liabilities should initially be recognized at fair value as of the date of acquisition. Therefore, choice B is the best option as it reflects the fair value of Stanley's assets and liabilities as of April 1, 2017, the date of acquisition. Choices A, C, and D do not reflect the fair value of the assets and liabilities at the date of acquisition, which is necessary to provide relevant and reliable information to users of the consolidated financial statements.

On April 1, 2017, Paxton Corporation Acquired All of the Outstanding