Question

Jackson Limited acquired a bundle of assets for a cash consideration of $200,000. The fair values of the assets on date of acquisition was as follows: Building $132,000, Furniture $88,000. The appropriate journal entry to record this acquisition is:

Select one:
a. DR Building $132,000; Dr Furniture 88,000; CR Cash $220,000
b. DR Building $120,000; Dr Furniture 80,000; CR Cash $200,000
c. DR Property, plant and equipment $200,000; CR Cash $200,000
d. DR Property, plant and equipment $220,000; CR Cash $220,000

Answer 1

Jackson limited acquired a bundle of assests for a cah consideration of c) DR Property, plant and equipment $200,000; CR Cash $200,000

Step-by-step explanation:

The correct journal entry to record the acquisition of assets is option c. When Jackson Limited acquires assets for a cash consideration of $200,000, it needs to debit the Property, Plant and Equipment (PPE) account for the fair values of the acquired assets. In this case, the fair values are $132,000 for the building and $88,000 for the furniture. Therefore, the total debit to PPE is $132,000 + $88,000 = $220,000. However, since the payment is made in cash, the credit entry is for the cash consideration of $200,000. The journal entry is then balanced, reflecting the acquisition of assets at their fair values.

In summary, option c correctly represents the transaction. It acknowledges the fair values of the acquired assets and records the cash payment, ensuring that the accounting equation (Assets = Liabilities + Equity) remains balanced. This approach aligns with the principles of accurate financial reporting and transparency in presenting the company's financial position after the acquisition.

It's crucial for companies to adhere to proper accounting principles to reflect their financial transactions accurately. The selected journal entry ensures that the recorded values for the acquired assets align with their fair values, providing stakeholders with a clear and transparent representation of the company's financial position.