Business Combinations Flashcards
A business combination is a transaction or an event wherein an acquirer obtains control of a business. TF
True
If A owns 40% of C + veto rights and B owns 60% of C who controls C?
Neither, the veto rights in essence make A and B equal partners.
What is the quickest way to determine a company’s net book value?
Add just the equity accounts together.
Costs incurred when recording an acquisition are capitalized. TF
False, expensed as incurred.
“Pooling of interests” is not an acceptable form of business combination. TF
True
What is it called when an acquired entity is “collapsed” into an existing entity?
A merger
A consolidation is when a new entity consolidates the net assets of two or more entities to form a new entity. TF
True
An acquisition results in one distinct entity. TF
False. The two entities remain separate unlike mergers and consolidations.
The financials of merged, consolidated, and acquired companies stay separate until after the implementation date. TF
True
The acquisition method of accounting applies to all business combinations post 2009. TF
True
What is the “measurement period” and how long may it last?
The measurement period is the amount of time it takes a firm to value the acquired firms FV and determine goodwill. It may last a maximum of 1 year.
The overriding premise in dealing with business combinations is that everything is valued via FMV at the acquisition date. TF
True
Contingent liabilities are measured my the present value of future cash flows as of the aquistion date. TF
False, FMV
A journal entry for an aqusition with a contingent liability would include a credit to contingent liability. TF
True. Dr. Invesment in company, cr. contingent liability, cr. cash
If share based payments are required for employees of an acquired firm, and relates to pre combination services, that cost is part of the cost to aquire the firm. TF
True
If share based payments are not required for employees of an acquired firm, and relates to post combination services, that cost is part of the cost to aquire the firm. TF
False, post combination expenses
If share based payments are not required for employees of an acquired firm that cost is part of the cost to aquire the firm. TF
Falsle, post combination expenses
Costs associated with a business combination are expensed as incurred. TF
True
What are the five steps in a business combination?
- Identify the aquirer
- Determine the aquistion date and measurement period
- Determine the cost of the aquistion
- Recognize and measure the identifiable assets, liabilities, and non controlling interest involved
- Recognize and measure Goodwill
What is a VIE?
Variable Interest Entity.
The primary beneficiary of the VIE must consolidate the business. TF
True
SEC registration costs should be netted against APIC when determining the amount after a business combo. TF
True
The excess of FV over cost is considered goodwill in a business combo. TF
False, its a gain from a bargain purchase
Under the “___” equity method of accounting, the acquirers NI = Consolidated NI
Full
The equity method is used for what % of ownership?
20% to 50%, >50% would require a consolidation
Under the equity method, any excess paid over the ____ of the net assets, is considered ______.
FV, goodwill
