Chapter 1 Flashcards

1
Q

consolidated financial statements

A

portray related companies as if they were a single company

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2
Q

Enterprise Expansion why

A

it allows for economies of scale

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3
Q

subsidiary

A

a company that a parent company controls most of the time through major ownership of stock

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4
Q

parent

A

controls a sub

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5
Q

pooling of interests

A

when wealthy individuals pool cash to purchase companies

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6
Q

special purpose entity

A

a financing vehicle that is not a substantive operating entity

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7
Q

Internal expansion

A

when assets in a company are sold to the separate entity and the other entity receives stock

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8
Q

spin off(not on the test)

A

when the stock of a new company is distributed to the owners of the old company without having them forfeit their shares in the old company

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9
Q

split off(not on test)

A

when the shares of the old company are exchanged to the shareholders for shares of the new company

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10
Q

external expansion

A

business combination where an acquirer obtains control of one or more businesses

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11
Q

control

A

the ability to direct policies and management

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12
Q

merger

A

business combination in which the acquired company’s assets and liabilities are combined with those of the acquiring company making one entity

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13
Q

controlling ownership

A

the acquired company remains as a separate entity, but the majority of its stock is with a controlling entity this is a parent sub relationship

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14
Q

noncontrolling ownership

A

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

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15
Q

other beneficial interest

A

one company has an interest in another company that helps it these must be consolidated

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16
Q

pooling of interest method

A

outlawed by the FASB in 2007

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17
Q

Internal expansion transfer of assets

A

are at book value unless the Fair value is less then the asset is written down by the original company then given to the new company at the lower value

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18
Q

statutory merger

A

only one of the combining companies survives and the other is dissolved

19
Q

statutory consolidation

A

both companies are dissolved and the assets and liabilities are merged to make a new company

20
Q

stock acquisition

A

.when one company buys a majority of a company’s stock and gains control forming a parent sub relationship

21
Q

tender offer

A

when one company offers the shareholders of another company a price to buy their stock in a hostile takeover

22
Q

controlling %

23
Q

value of assets in external expansion

A

they are appraised and valued at fair value

24
Q

acquisition method

A

the acquirer recognizes all assets acquired and liabilities assumed and measures them at their acquisition date fair values

25
good will
an asset representing the value of future earnings there are three things that are valued 1. the FV of the consideration given by the acquirer 2. The FV of any interest in the acquiree already held by the acquirer if any 3. The FV of the noncontrolling interest in the acquiree
26
differential
the difference between the fair value of the consideration exchanged and the book value of the net identifiable assets
27
JE to record acquisition costs
Acquisition Exp | Cash
28
JE for acquisition
``` Cash Inventory buildings goodwill Current Liab C/S APIC ```
29
JE for acquired company before distribution of stock
``` Investment in Company Stock Current Liabilities Accum Depr Cash Inventory buildings Gain on sale ```
30
JE for the distribution of the acquirer stock on acquired company's books
``` C/S APIC RE Gain Investment in Acquirer Stock ```
31
how often is goodwill tested for impairment
annually
32
Goodwill once written down can
not be written up
33
bargain purchase
when the purchase price is less than the fair value of an asset or company. if this occurs a gain is recorded
34
JE for bargain purchase
``` Cash & Rec Inventory etc Cash Curr Liab Gain ```
35
Acquisition of Stock, the Investment Account is valued at
``` the fair value of consideration ex: FV of stock is 100 Inv in Company 100 CS 80 APIC 20 ```
36
Earning of an acquired company are included on the acquirers statement only
after the acquired date. income earned before the date is not included
37
Uncertainty situations
measurement period, contingent consideration, acquiree contingencies
38
measurement period
period of time where to account for uncertainty of fair values cannot exceed 1 year, but ends when the acquirer obtains the necessary information
39
JE for measurement period adjustment
Land Goodwill Impairment Loss Land
40
Contingent Consideration
something that would change the fair value like an agreement on future profits
41
acquiree contingencies
something that relates to the acquiree that could change the fair value of the company
42
In process R&D
these should be recorded as assets and impaired annually
43
Noncontrolling equity prior to business combination should be
revalued at the date of the business combination