What is the journal entry when a company issues debt to purchase all outstanding shares of another company?
When a company issues debt to purchase all outstanding shares of another company, it involves multiple elements that should be recorded in the journal entry. Here's an example of how to record the transaction:
1. Determine the purchase price: Calculate the total amount of debt issued by the company to acquire the outstanding shares of the other company.
2. Record the acquisition of shares:
- Debit: Investment in [Company Name] (Asset account representing the ownership of the other company)
- Credit: Long-term Liability (representing the debt issued to purchase the shares)
3. Record the debt issuance:
- Debit: Cash (representing the amount received from the debt issuance)
- Credit: Long-term Debt (representing the amount borrowed to finance the acquisition)
Remember, the specific accounts used may vary based on the company's accounting practices and internal structures. It's important to consult with a professional accountant or refer to the company's specific chart of accounts for accurate journal entries.