Chapter 1 Flashcards
consolidated financial statements
portray related companies as if they were a single company
Enterprise Expansion why
it allows for economies of scale
subsidiary
a company that a parent company controls most of the time through major ownership of stock
parent
controls a sub
pooling of interests
when wealthy individuals pool cash to purchase companies
special purpose entity
a financing vehicle that is not a substantive operating entity
Internal expansion
when assets in a company are sold to the separate entity and the other entity receives stock
spin off(not on the test)
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
split off(not on test)
when the shares of the old company are exchanged to the shareholders for shares of the new company
external expansion
business combination where an acquirer obtains control of one or more businesses
control
the ability to direct policies and management
merger
business combination in which the acquired company’s assets and liabilities are combined with those of the acquiring company making one entity
controlling ownership
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
noncontrolling ownership
the purchase of a less than majority interest in another corporation does not usually result in a business combination or controlling situation
other beneficial interest
one company has an interest in another company that helps it these must be consolidated
pooling of interest method
outlawed by the FASB in 2007
Internal expansion transfer of assets
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
statutory merger
only one of the combining companies survives and the other is dissolved
statutory consolidation
both companies are dissolved and the assets and liabilities are merged to make a new company
stock acquisition
.when one company buys a majority of a company’s stock and gains control forming a parent sub relationship
tender offer
when one company offers the shareholders of another company a price to buy their stock in a hostile takeover
controlling %
over 50%
value of assets in external expansion
they are appraised and valued at fair value
acquisition method
the acquirer recognizes all assets acquired and liabilities assumed and measures them at their acquisition date fair values
good will
an asset representing the value of future earnings there are three things that are valued
- the FV of the consideration given by the acquirer
- The FV of any interest in the acquiree already held by the acquirer if any
- The FV of the noncontrolling interest in the acquiree
differential
the difference between the fair value of the consideration exchanged and the book value of the net identifiable assets
JE to record acquisition costs
Acquisition Exp
Cash
JE for acquisition
Cash
Inventory
buildings
goodwill
Current Liab
C/S
APICJE for acquired company before distribution of stock
Investment in Company Stock
Current Liabilities
Accum Depr
Cash
Inventory
buildings
Gain on saleJE for the distribution of the acquirer stock on acquired company’s books
C/S APIC RE Gain Investment in Acquirer Stock
how often is goodwill tested for impairment
annually
Goodwill once written down can
not be written up
bargain purchase
when the purchase price is less than the fair value of an asset or company. if this occurs a gain is recorded
JE for bargain purchase
Cash & Rec
Inventory
etc
Cash
Curr Liab
GainAcquisition 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
Earning of an acquired company are included on the acquirers statement only
after the acquired date. income earned before the date is not included
Uncertainty situations
measurement period, contingent consideration, acquiree contingencies
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
JE for measurement period adjustment
Land
Goodwill
Impairment Loss
Land
Contingent Consideration
something that would change the fair value like an agreement on future profits
acquiree contingencies
something that relates to the acquiree that could change the fair value of the company
In process R&D
these should be recorded as assets and impaired annually
Noncontrolling equity prior to business combination should be
revalued at the date of the business combination
