Chapter 1 Flashcards
Business combination
Operations of two or more companies are brought under common control
Business combination by intent are what two ?
Friendly,
Unfriendly
Friendly
Boards of directors of the potential combining companies agree on the proposed combination
Unfriendly (hostile)
Board of directors of a company targeted for acquisition is against the business combination.
Business combinations by integration are what two types?
Horizontal integration
Vertical integration
Conglomeration
Horizontal conglomeration
Same business lines and markets
Vertical integration
Operations in different , but successive stages of production of distribution or both
Conglomeration
Unrelated and diverse products or services
Various types of business combination
Asset acquisition
Stock acquisition
What is given up in a business combination
Cash
Debt
Stock
Combination of above
Statutory merger
Company A + company B = Company A
Company A acquires all of assets of company B
Journal entry for statutory merger
Dr. assets of company B
Cr. Liabilities of company B
Consideration
Statutory consolidation
Company A + Company B = company C
A new coaling is created.
Consolidation financial statements (stock acquisition)
Company A + company B = consolidated A company A acquires stock of company B
Journal entry of consolidated financial statements
Dr. investment In B
Cr. Consideration.
Reasons why companies combine
Cost advantage Lower risk Fewer operating delays Avoidance of take overs Acquisition of intangible assets
Goodwill
Purchase price
- net asset (fair value)
Treatment of acquisition expenses
Direct and indirect cost - expenses
Dr. direct expense
Indirect expense
Cr. Consideration
Treatment of acquisition expenses
Security issuance cost - capitalized to occ
Dr. Occ
Cr. Consideration
Contingent consideration slide 19. (Picture)
Purchase agreement to provide the purchasing company an additional consideration of the seller if certain future events or transaction pa occur
Bargain purchase
When fair value of identifiable net assets (asset less liability) exceeds the total cost of the acquired company
Purpose of consolidated statements
To present the operating results and the financial position of a parent and all its subsidiaries was if they are one economic entity
Parent
Acquiring company
Subsidiary
Acquired company
Non controlling interest
Remaining shareholders
Control
Possession, direct or indirect, of the power to direct management and other policies of another entity , whether through the ownership of voting shares, by contract or otherwise.
Purpose of consolidated statements
To present the operating result and the financial position of a parent and all its subsidiaries as if they are one economic entity
Circumstances when majority owned should be excluded from consolidated entity
Control does not rest with the majority owner
Subsidiary operates under governmentally impose uncertainty so severe as to raise significant doubt the parents control
