9/3 Chapter 2

Question 1

Spinoff

Answer 1

?

Question 2

Splitoff

Answer 2

take assets and liabilities and transfer them to another company but you forfeit your shares to the other company

Question 3

Problem 127

Answer 3

in notebook

Question 4

stock costs

Answer 4

any costs for purchasing stock you debit equity or APIC

Question 5

control line

Answer 5

> 50% when you cross the control line then you have to record a gain or loss if you don’t cross the line then you can’t record a gain or a loss, ex 15 to 45 you don’t record it, ex: 51-100 you don’t record it. if you cross it twice you only record it the second time

Question 6

Impairment in goodwill steps

Answer 6

Step 1: FV of Unit (Evaluation Experts)
Compare to the carrying value(includes Goodwill) of the company/division we purchased
If the FV of the Unit > CV, no impairment
Step 2: FV of Unit-Net Assets W/O Good Will
Ex: 700000-500000=200000 or implied good will
we writeoff 100000 of goodwill

Question 7

Goodwill

Answer 7

amount you pay in the excess of Fair Value

Question 8

Good Will

Answer 8

Income 200000
shares    1000     = 200*4=800*1000=800000
PP 800000
FV
Liab 200000
Goodwill 300000

Question 9

Intangibles

Answer 9

Finite intangibles assets should be amortized over useful life
Infinite intangibles should not be amortized but should be impaired annually
ex: Marketing related intangibles, Customer related intangibles, artistic related intangibles, contract based intangibles(licenses, franchises, etc), tech based intangible assets(patents and unpatented tech

Question 10

Testing for goodwill impairment

Answer 10

To test for impairment, the FV of the reporting unit is compared with its carrying amount
if the FV of the unit exceeds its carrying amount the GW is unimpaired.

Question 11

financial statements prepared subsequent to a business combination reflect from

Answer 11

the date of combination, the income earned is only the portion earned after we acquired it

Question 12

Uncertainty in business combinations

Answer 12

may not exceed one year, we can reduce goodwill without going through the income stmt if it doesn’t exceed one year

Question 13

Acquiree contingencies

Answer 13

the acquirer must recognize all contingencies

Question 14

Consolidation

Answer 14

Financial statement concept, present as if they are one company

Question 15

Equity Method

Answer 15

book keeping conventions