Consolidating business operations
If the acquired company is liquidated then the company needs an additional entry to distribute the remaining assets to its shareholders.Treatment to the purchasing company: When the purchasing company acquires the subsidiary through the purchase of its common stock, it records in its books the investment in the acquired company and the disbursement of the payment for the stock acquired.
Consolidation is the practice, in business, of legally combining two or more organizations into a single new one.
In this type of relationship the controlling company is the parent and the controlled company is the subsidiary.
The parent company needs to issue consolidated financial statements at the end of the year to reflect this relationship.
Regardless of the method of acquisition; direct costs, costs of issuing securities and indirect costs are treated as follows: Treatment to the acquiring company: When purchasing the net assets the acquiring company records in its books the receipt of the net assets and the disbursement of cash, the creation of a liability or the issuance of stock as a form of payment for the transfer.
Treatment to the acquired company: The acquired company records in its books the elimination of its net assets and the receipt of cash, receivables or investment in the acquiring company (if what was received from the transfer included common stock from the purchasing company).