Zooco, Inc. acquired 40% of the voting stock of Stubco, Inc. on September 1, 2008, and accounted for the investment using the equity method of accounting. On May 1, 2009, Zooco acquired an additional 20% of Stubco's voting stock to achieve a business combination. Which one of the following is the value Zooco should use to measure its original 40% investment in Stubco when recording the combination? A. Original cost, September 1, 2008. B. Carrying value, May 1, 2009. C. Fair value, May 1, 2009. D. 40% of Stubco's book value, May 1, 2009.

Question

Business

Maci Alvarado

2 January, 01:17

Zooco, Inc. acquired 40% of the voting stock of Stubco, Inc. on September 1, 2008, and accounted for the investment using the equity method of accounting. On May 1, 2009, Zooco acquired an additional 20% of Stubco's voting stock to achieve a business combination. Which one of the following is the value Zooco should use to measure its original 40% investment in Stubco when recording the combination? A. Original cost, September 1, 2008. B. Carrying value, May 1, 2009. C. Fair value, May 1, 2009. D. 40% of Stubco's book value, May 1, 2009.

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Answers (1)

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Dakota Hicks · Answer 1

Answer: The answer is C Fair value May 1, 2009

Explanation:

When a business is acquired first by 40% of the voting stock, and then again by 20% of the voting stock. In the measurement of the original investment the fair value of the acquisition date is used to measure the original investment when recording the combination. At the date of acquisition of the business, all assets and liabilities and any non controlling interest in the acquiree should be measured at fair value at that date. The difference therefore between the carrying value and the fair value on the date of the acquisition will then be recognized as a gain or loss for the period under review.