Question

How should the acquisition of Steinbeck Corporation be recorded in the company's financial statements?

a) As a liability
b) As an expense
c) As an asset
d) As equity

Answer 1

The acquisition of Steinbeck Corporation should be recorded as an asset in the acquiring company's financial statements, often as an intangible asset if its value exceeds that of the net identifiable assets.

Step-by-step explanation:

The acquisition of Steinbeck Corporation should be recorded in the acquiring company's financial statements as an asset. When one company acquires another, the acquired company's assets and liabilities are consolidated into the acquiring company's balance sheet. The purchase would usually be classified as a business combination. The value of the acquired entity is represented on the balance sheet as an intangible asset if it is in excess of the fair value of its net identifiable assets. There are various accounting standards, such as the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), which guide the recording of such business combinations.