8/29 Cost Accounting Chapter 1

Question 1

Hard Concepts

Answer 1

Spin off, Split off 6 or 7
Trans of assets to new sub
Goodwill Impairment

Question 2

Problem 127

Answer 2

hard, do it

Question 3

Internal vs External Expansion

Answer 3

we will cover it

Question 4

Subsidiary vs Parent Relationship

Answer 4

the parent owns some stock in the sub, but it must be substantial

Question 5

Pooling of Interest

Answer 5

bringing both companies together without cash exchange

Question 6

Internal Expansion

Answer 6

all is done at the lower of fair and book value, the parent must take the loss by writing down the asset

Question 7

External Expansion

Answer 7

all is done by fair market value,

Question 8

Participating loan

Answer 8

where more than one company gets a loan together

Question 9

Joint Venture

Answer 9

when they have an operating agreement to do something

Question 10

Special purpose entities

Answer 10

we will go over in the future

Question 11

Control

Answer 11

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

Question 12

Business combination

Answer 12

when an acquirer obtains control of one or more businesses

Question 13

Merger

Answer 13

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

Question 14

Controlling ownership(no dissolution)

Answer 14

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

Question 15

Consolidated Financial Statements

Answer 15

where there are separate legal entities, but they file one financial statement

Question 16

Combine Financial Statements

Answer 16

?

Question 17

Noncontrolling ownership

Answer 17

the purchase of a less than majority interest in another corporation does not usually result in a business combination or controlling situation

Question 18

Beneficial Interest

Answer 18

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

Question 19

Practice Quiz Question

Common way to obtain corporate control is

Answer 19

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

Question 20

Internal Expansion

Answer 20

assets and liabilities are transferred at book value,

Question 21

Recognition of fair value of transferred assets

Answer 21

can only be when there is a third party

Question 22

statutory merger

Answer 22

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

Question 23

Statutory consolidation

Answer 23

asset purchase & dissolution & a new company is formed

both combining companies are dissolved and the assets and liabilities are transferred to the new company

Question 24

Stock acquisition

Answer 24

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

Question 25

Stock acquisition assets

Answer 25

Evaluation of assets at fair value have to been done on the date of acquisition

Question 26

Non controlling interest

Answer 26

if less than 100 percent of the acquiree is acquired, the noncontrolling interest also is measured at its acquisition date fair value

Question 27

Goodwill determination

Answer 27

1. the fair value of the consideration given by the acquirer
2. the fair value of any interest in the acquiree already held by the acquirer
3. 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

Question 28

Goodwill exist when

Answer 28

the acquisition price is greater than FMV
recognize as an asset
do not amortize
evaluate periodically for possible impairment

Question 29

bargain purchase element

Answer 29

if the acquisition price is less than FMV then a bargain purchase element exists

Question 30

Enterprise fair value

Answer 30

is not used for goodwill

Question 31

Going concern value

Answer 31

value of potential earnings,

Question 32

Acquiring Assets vs Stock

Answer 32

you would purchase an asset rather than stock so you wouldn’t be responsible for the things the other company did

Question 33

Three buckets for acquirers costs

Answer 33

1. the fair value of the consideration given
2. certain out of pocket direct costs
   In the past, these were included in acquisition
   Now expense
3. contingent consideration
   paid subsequent to the acquisition date