Acquisition Method

Question 1

Acquisition method fees are expenseded

Answer 1

legal, finder’s fees, indirect cost

Question 2

Acquisition Date Calculation (of CAR)

Answer 2

difference between book value and fair value

BASE calculation but put CAR in reverse so start with “E”

Question 3

Acquisition Date computation Noncontrolling Interest

Answer 3

FV of sub * non-controlling interest percentage

Question 4

Noncontrolling Interest after the Acquisition Date

Answer 4

accounted for using equity method; 
Beginning noncontrolling interest 
\+ NCI share of subsidiary net income 
- NCI share of subsidiary dividends
=Ending NCI

Question 5

Acquisition Method Allocation of Subsidiary Net Losses

Answer 5

allocated to NCI even if result is negative carrying balance

Question 6

NCI on B/S Acquistion Method

Answer 6

• consolidate balance sheet includes 100% of sub’s assets and liabilities
• NCI share of sub’s net assets should be presented as part of stockholder’s equity, separately from parent’s

Question 7

NCI on I/S Acquistion Method

Answer 7

Consolidated I/S will include 100% of Subs revenues and expenses after the date of acquisition

Question 8

UNDER IFRS, MEHTODS FOR NCI COMPUTATION

Answer 8

• “Full goodwill” which is GAAP
  NCI= FV of Sub * NCI %
• “Partial goodwill” method
  NCI= FV of sub net identifiable assets * NCI %

Question 9

HANDLE IN PROCESS R&D: ACQUISITION METHOD

Answer 9

• recognize as intangible asset separate from goodwill at acquisition date
• do not write off immediately
• expense continuing R&D to complete
  Later:
  1) project success–>amortize IP R&D
  2) Failure–>impair/write off IP R&D

Question 10

DETERMINING AN ACQUISITION WITH GOODWILL

Answer 10

• if acquiring where FV (acq price + FV of NCI) > FV of 100% of assets follow these steps
  1) adjust balance sheet accounts to fair value (recalc depreciation) and allocate acq cost to fair value of 100% of Balance Sheet accounts
  2) allocate remaining acquisition cost to identifiable intangibles at FV
  a) finite life which is amortized over remaining life
  b) indefinite life subject to one step impairment test
  3) allocate anything remaining to goodwill, not amortized just test for impairment

Question 11

Determination ACQUISITION with a gain

Answer 11

parent acquired sub at discount (paid less then NBV)

1) “B” allocate acquisition cost to FV of 100% balance sheet (even if negative balance created)
2) “I” allocate remaining acquisition cost to FV of 100% of identifiable intangibles
3) “G” negative balance remaining is gain

Question 12

STATEMENT OF CASH FLOWS IN PERIOD OF ACQUISITION

Answer 12

• net cash spent or received in acquisition reported in investing section
• assets and liabilities of sub on acquisition date must be added to parent’s to determine change in cash due to operating, investing, and financing activities during period

Question 13

DIFFERENCES BETWEEN PREPARING A NORMAL STATEMENT OF CASH FLOWS AND ONE FOR A CONSOLIDATED ENTITY

Answer 13

for consolidated:

• when reconciling net income to net cash provided by operating activities, total consolidated net income should be used
• financing section should include dividends paid to noncontrolling shareholders
• investing section may report acquisition of additional subsidiary shares by the parent if the acquisition was an open market purchase

Question 14

Non-control –> Control (Step Transaction)

Answer 14

• remeasure previously held equity interest to fair value

- income statements will reflect this adjustment

Question 15

Parent Acquires More (already above 50%)

Answer 15

• treat like treasury stock transaction
• equity transaction NOT ACQUISITION
• no gain or loss recognized on the income statement
• additional paid-in capital adjusted

Question 16

CHANGE FROM CONTROL–>NON-CONTROL?

Answer 16

• recognize gain or loss of sale of the stock
• remeasure the remaining non-consolidating interest to FV
• recognize adjustment to FV on income statement

Question 17

IFRS partial goodwill method

Answer 17

Goodwill = Acquisition cost − Fair value of net assets acquired
The fair value of XXX net assets is XXX ($XX book value + $XX asset FV adjustments + $XX identifiable intangibles).

Question 18

IFRS partial goodwill method, noncontrolling interest (NCI)

Answer 18

NCI = FV of subsidiary net assets × NCI %

Question 19

Under U.S. GAAP, noncontrolling interest (NCI)

Answer 19

NCI = Fair value of subsidiary × NCI %

Question 20

What effect does the dividend have on the retained earnings and noncontrolling interest balances in the parent company’s consolidated balance sheet?

Answer 20

NO effect R/E Decrease NCI

Beginning noncontrolling interest
+ NCI share of subsidiary net income
- NCI share of subsidiary dividends
Ending noncontrolling interest

Question 21

The acquisition price exceeds the fair value of net assets acquired. How should Parent Company determine the amounts to be reported for the plant and equipment and long-term debt acquired from Small Company?

Answer 21

When the acquisition price exceeds the fair value of net assets acquired, assets and liabilities should be presented at fair value.

Question 22

the appraised values of the identifiable assets acquired exceeded the acquisition price. How should the excess appraised value be reported?

Answer 22

As a gain, after adjusting the balance sheet, including identifiable intangible assets, to fair value.

Question 23

How are plant assets recorded when parent acquired 100% of Sub ?

Answer 23

The acquisition method requires that 100% of the fair value of the subsidiary’s assets be recognized

FV Sub
+ BV Parent

Question 24

At date of acquisition, the consolidated equity will be equal to

Answer 24

the parent company’s equity plus the fair value of any noncontrolling interest. The subsidiary company’s equity accounts are eliminated.

Question 25

When the acquisition price exceeds the fair value of net assets acquired, assets and liabilities should be presented

Answer 25

Fair Value

Question 26

Consolidated retained earnings are the XXX as the parent company retained earnings,

Answer 26

Same