Business Combinations Flashcards
Types of combinations
Merger: are 2 or more entities and one of them merges into the other with 1 surviving entity
Consolidation: 2 or more entities are consolidated into 1 new entity leaving no survivors
Acquisition: one entity just gains control of the other, but both survive
When can the acquisition date be
The acquisition date can be on, before, or after the closing date
Contractual & noncontractual contingencies
All contractual contingencies are recorded, but noncontractual contingencies are recorded only when probable and can be estimated
Reacquired right asset
Is the right for the company being bought to use some the the acquirer’s shit
When acquire a company and their contingent consideration liability decreases
This causes a gain or loss, but never a change in amount paid to acquire the company
Stockholder’s equity for a new consolidated company in a combination
The common stock is the amount the consolidated company issued & the APIC is the total of the original companies combined minus the common stock issued by the newly formed company. There are no retained earnings because the company is new.
When issuing assets in a combination and registration costs
The amount you would capitalize for the cost of acquiring the assets is the number of shares issued times the fair value of the shares. The costs of registering and doing whatever to the shares would not reduce the amount you capitalize as the value of the assets.
Legal merger/consolidation journal entry with gain or goodwill
Dr. Accounts Receivable Dr. Inventory Dr. Property, Plant, Equipment Dr. Other Assets Dr. Goodwill*** Cr. Accounts Payable Cr. Other current liabilities Cr. Long-term liabilities Cr. Cash Cr. Bargain purchase gain***
Acquisition method journal entry
Acquisition with goodwill
Dr. Investment in S
Cr. Cash
Acquisition with a bargain
Dr. Investment in S
Cr. Cash
Cr. Bargain purchase gain
