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Assume that Big Company decides to acquire 100% Little Company for $500,000. Prepare the appropriate journal entries. Big Company Balance Sheet Prepare the journal entries for a 100% Asset Acquisition (using Cash) Prepare Elimination Entries for Stock Acquisition Assets, Liabilities & Equities Book Value Account DR CR Cash $2,100,000 Account DR CR AR $10,000 Inventory $200,000 Land $40,000 PP&E $400,000 Accumulated Depreciation -$150,000 Patent $0 Total Assets $2,600,000 AP $100,000 Common Stock ($10 par) $450,000 Additional Paid In Capital $600,000 Which accounting method is most appropriate for representing an investment of this type? Big Company Balance Sheet (Consolidated) Retained Earnings $1,450,000 Assets, Liabilities & Equities Book Value Total Liabilities & Equity $2,600,000 Little Company Balance Sheet Assets, Liabilities & Equities Book Value Cash $35,000 AR $10,000 Inventory $65,000 Land $40,000 PP&E $400,000 Prepare the journal entries for a 100% Asset Acquisition (using Big Company Cash) Accumulated Depreciation -$150,000 Patent $0 Account DR CR Total Assets $400,000 AP $100,000 Common Stock $100,000 Prepare the journal entries for a 100% Acquisition by issuing 10,000 shares of Big Company Stock Additional Paid In Capital $50,000 Retained Earnings $150,000 Account DR CR Total Liabilities & Equity $400,000 Assume that Book Value = Fair Value Overview of the Final Project (RA and LASA) In order to design the strategy to be used for the international/global operations, a company needs to have clear mission and vision, as well as to define its market positioning. Assessment of the external environment allows one to identify strategic thrusts, financial targets, sources of competitive advantage, etc. An internal environment analysis will identify if necessary resources and capabilities of the company are in alignment with the opportunities and threats identified from the external environment assessment. Together, these analyses will provide a complete picture of what strategies should be considered for a successful operation in the international markets of choice. For your final project, you will develop a global strategy analysis for a company of your choice. Assignments throughout the course will contribute to your final project. There are two major assignments in this course, one labeled as a “Required Assignment” and the other labeled as a LASA (Learning Assessment System Assignment). Together they account for 50% of your grade and constitute your final project. · Required Assignment: Global Strategy Analysis—the International/Global Operations and Their Key Markets and Potential Competitors (worth 200 points) is due in Module 4. In this assignment, you will research the potential international markets and possible competitors of the company of your choice. Take some time this week to download the specific assignment directions and grading criteria and identify any questions you have about the assignment. Consider developing an action plan for conducting your research so that you can complete this major assignment on time. · LASA (worth 300 points) is due in Module 7. For this assignment, you are to create a comprehensive report on your global strategy analysis including a section that discusses possible strategic alternatives to be implemented for your company’s international operations. Scholarly sources should be consulted and included in the justification of your strategic choices. Take some time this week to download the specific assignment directions and grading rubric and identify any questions you have for the assignment. Consider developing an action plan for conducting your research so that you can complete this major assignment on time. Click here to download the Overview of the Final Project including RA and LASA. Using the navigation on the left, please proceed to the next page.

Paper For Above instruction

The scenario of a corporate acquisition presents complex accounting challenges that require precise journal entries and thorough financial analysis. When Big Company acquires Little Company for $500,000, it must record the transaction appropriately under relevant accounting standards, typically utilizing either the acquisition method or the asset purchase method depending on the nature of the transaction. The most fitting approach often aligns with the acquisition method, which emphasizes the fair value of acquired assets and liabilities and facilitates consolidated financial reporting.

In the context of this case, the initial journal entry to record the acquisition involves recognizing the purchase price against the fair value of assets and liabilities acquired. Assuming the transaction is a purchase of assets, Big Company would debit the relevant assets—cash, accounts receivable, inventory, land, property, plant, and equipment—at their fair values, and credit cash or other consideration for the purchase price. Any difference between the fair value of net identifiable assets and the purchase price would be recorded as goodwill or a bargain purchase gain, depending on whether it favors the buyer or the seller.

For the asset acquisition using cash, journal entries are typically straightforward. For example, assuming the assets of Little Company are acquired for $500,000, the entries would debit the specific asset accounts with their fair values and recognize liabilities if any. If the total fair value of assets acquired equals the purchase price, no goodwill would be recorded, and the entry is direct. Conversely, if the fair value of assets is less than the purchase price, a goodwill amount would be recognized on the balance sheet, representing the excess paid over the fair value of net identifiable assets.

In scenarios involving the issuance of stock for acquisition, the journal entries substantially differ. Here, Big Company would record the increase in equity—by debiting assets and crediting common stock and additional paid-in capital—reflecting the fair value of the stock issued. For instance, issuing 10,000 shares with a par value of $10 each, and an additional paid-in capital of $50,000, would increase the company's equity accordingly. This method often involves less immediate cash outlay and aligns with strategic financing considerations.

Regarding the most appropriate accounting method for representing such an investment, the acquisition method is generally preferred under IFRS and GAAP for business combinations, as it provides a comprehensive depiction of the identifiable assets acquired, liabilities assumed, and any goodwill or gain from the transaction. This approach supports transparent and consistent financial reporting in accordance with international standards.

The financial statements, including the consolidated balance sheets for Big Company, reflect the impact of the acquisition, showing the increased asset base and equity structure. The consolidation process involves eliminating intercompany transactions and adjustments to ensure the presentation accurately portrays the combined entity’s financial position.

The strategic implications extend beyond the accounting entries, emphasizing that detailed financial analysis underpins sound decision-making in acquisitions. Proper valuation of assets, understanding of impairments, and recognition of intangible assets like patents are critical components of a comprehensive acquisition strategy.

Furthermore, integrating the detailed analysis of external and internal environments informs strategic choices for international expansion. A company's mission, vision, and market positioning are essential in guiding global strategies that enable competitive advantages. External environmental assessments help identify opportunities and threats, while internal analysis evaluates the company's resources and capabilities, enabling alignment with external conditions to formulate effective international strategies.

In conclusion, the acquisition process involves intricate accounting entries that must adhere to established standards to accurately reflect the transaction’s financial impact. Matching these financial strategies with a robust understanding of external market dynamics and internal resources informs strategic decisions that support successful international operations. Effective planning, accurate financial reporting, and strategic alignment are all necessary for the company's growth and global competitiveness.

References

• FASB. (2020). Accounting Standards Codification Topic 805 — Business Combinations. Financial Accounting Standards Board.
• IASB. (2021). IFRS 3 — Business Combinations. International Accounting Standards Board.
• Gujarathi, D., & Turney, S. (2019). Financial Accounting: Tools for Business Decision Making. Wiley.
• Healy, P. M., & Palepu, K. G. (2018). Business Analysis & Valuation Using Financial Statements. Cengage Learning.
• Penman, S. H. (2019). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
• Higgins, R. C. (2018). Analysis for Financial Management. McGraw-Hill Education.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2020). Financial Accounting: IFRS Edition. Wiley.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2021). Financial Accounting Theory and Analysis. Wiley.
• Larson, K. D., & Street, D. L. (2020). Fundamental Financial Accounting Concepts. McGraw-Hill Education.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting. Wiley.