Combinations/Consolidations

Question 1

Recording an Acquisition

Answer 1

• Recorded at Fair Value
  
  • D Investment in new entity
    ○ C Common Stock
    ○ C APIC
  • Registration and issuance of common stock fees are a direct reduction to APIC
    Recognized in accordance with other applicable GAAP

Question 2

Acquisition Costs

Answer 2

• Be charged to expense
  
  • All costs related to acquisition costs should be expensed in the period incurred
  • Legal and consulting fees are a current expense in the period, and do not affect APIC
  • Restructuring costs are also recognized separately from the business combination
    Advisory, legal, valuation, finders, etc

Question 3

Acquisition Recognition

Answer 3

• Must recognize assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at acquisition date
  
  • Measured at Fair values on Acquisition date
  • Recognize Goodwill on the acquisition date equal to:
    
    • Excess of consideration transferred + FV of any noncontrolling interest in acquiree over- the FV of all identifiable net assets acquired
  • Tax basis of an asset or liability should not be a factor in determining its fair value
  • DTL or DTA should be recognized for any difference between FB and tax basis of an asset or liability if it includes a temporary difference
  • Contingent assets and liabilities should be included when:
    
    • Contractual contingency exists or
      A contractual contingency is more likely than not to give rise to an asset or a liability

Question 4

Noncontrolling Interest

Answer 4

• NCI % X Net Assets of entity
  
  • Reported in the owners’ equity section
    Any reduction in subsidiary retained earnings (such as dividend declaration) will decrease noncontrolling interest

Question 5

Bargain Purchase

Answer 5

• Net assets acquired exceed the purchase price

Excess must be recognized as a gain in earnings at the date of acquisition

Question 6

Statutory Consolidation

Answer 6

Merging of two enterprises into a newly established enterprise

Question 7

Statutory Merger

Answer 7

Merging of two entities into one

Question 8

IFRS

Answer 8

Does not require goodwill to be recognized, but allows it as an option

Question 9

Combined vs Consolidated Financial Statements

Answer 9

• Only difference between the two is that a parent is not included in combined statements
  Different fiscal periods, foreign ops, and noncontrolling interest are all treated in the same manner