8/29 Cost Accounting Chapter 1 Flashcards
Hard Concepts
Spin off, Split off 6 or 7
Trans of assets to new sub
Goodwill Impairment
Problem 127
hard, do it
Internal vs External Expansion
we will cover it
Subsidiary vs Parent Relationship
the parent owns some stock in the sub, but it must be substantial
Pooling of Interest
bringing both companies together without cash exchange
Internal Expansion
all is done at the lower of fair and book value, the parent must take the loss by writing down the asset
External Expansion
all is done by fair market value,
Participating loan
where more than one company gets a loan together
Joint Venture
when they have an operating agreement to do something
Special purpose entities
we will go over in the future
Control
usual way: owning more than 50% of the subsidiary’s outstanding voting stock
unusual way: having a contractual agreement or financial arrangements that effectively achieves control
Business combination
when an acquirer obtains control of one or more businesses
Merger
a business combination in which the acquired company’s assets and liabilities are combined with those of the acquiring company results in no additional organizational components, when one company goes away or dissolutes
Controlling ownership(no dissolution)
a business combination in which the acquired company remains as a separate legal entity with a majority of its common stock owned by the purchasing company leads to a parent-sub relationship, required to have consolidated financial statements
Consolidated Financial Statements
where there are separate legal entities, but they file one financial statement
Combine Financial Statements
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Noncontrolling ownership
the purchase of a less than majority interest in another corporation does not usually result in a business combination or controlling situation
Beneficial Interest
One company may have a beneficial interest in another entity even without a direct ownership interest, this is when one company helps another company stay in business through financing or other help
Practice Quiz Question
Common way to obtain corporate control is
A. by purchasing more than 50% of an entity’s non-voting preferred stock
B. by bribing the CEO
C. by playing a video game about the company
D by purchasing more than 50% of an entity’s common stock, this is the answer
E None of the above
Internal Expansion
assets and liabilities are transferred at book value,
Recognition of fair value of transferred assets
can only be when there is a third party
statutory merger
an asset purchase and a dissolution, all liabilities and assets are transferred to the acquirer and the company is dissolved and the owner of the acquired company gets stock for his interest
Statutory consolidation
asset purchase & dissolution & a new company is formed
both combining companies are dissolved and the assets and liabilities are transferred to the new company
Stock acquisition
one company acquires the voting shares of another company and the two companies continue to operate as a separate, but related, legal entities
the acquiring company accounts for its ownership interest in the other company as an investment
parent subsidiary relationship
Present consolidated financial statements
Stock acquisition assets
Evaluation of assets at fair value have to been done on the date of acquisition
Non controlling interest
if less than 100 percent of the acquiree is acquired, the noncontrolling interest also is measured at its acquisition date fair value
Goodwill determination
- the fair value of the consideration given by the acquirer
- the fair value of any interest in the acquiree already held by the acquirer
- the fair value of the noncontrolling interest in the acquiree, if any
the total of these three amounts, all measured at the acquisition date, is compared with the acquisition date fair value of the acquiree’s net identifiable assets, and the difference is goodwill
Goodwill exist when
the acquisition price is greater than FMV
recognize as an asset
do not amortize
evaluate periodically for possible impairment
bargain purchase element
if the acquisition price is less than FMV then a bargain purchase element exists
Enterprise fair value
is not used for goodwill
Going concern value
value of potential earnings,
Acquiring Assets vs Stock
you would purchase an asset rather than stock so you wouldn’t be responsible for the things the other company did
Three buckets for acquirers costs
- the fair value of the consideration given
- certain out of pocket direct costs
In the past, these were included in acquisition
Now expense - contingent consideration
paid subsequent to the acquisition date
