Question

Blair Company acquires all of the assets and liabilities of Tomlinson Corporation, in a transaction reported as a merger. How are the assets and liabilities of Blair and Tomlinson reported? a. Tomlinson's assets and liabilities remain at book value, and Blair's assets and liabilities are reported at fair value at the date of acquisition b. The assets and liabilities of both Blair and Tomlinson are reported at fair value at the date of acquisition c. Blair's assets and liabilities remain at book value, and Tomlinson's assets and liabilities are reported at fair value at the date of acquisition d. The assets and liabilities of both Blair and Tomlinson are reported at book value at the date of acquisition

Answer 1

The correct answer will be option (c) Blair's assets and liabilities remain at book value, and Tomlinson's assets and liabilities are reported at fair value at the date of acquisition. It is because each component of assets and liabilities of the entity which is acquired has to be adjusted for fair value in items such as inventory and contracts,  hedging instruments and contingencies whereas Blair Company will record it's own assets at the book value itself. The other options (a), (b) and (d) are not correct because of the above reason.