Consolidations Flashcards
Which method is used for a stake of 20% ownership or less?
It is accounted for a FV and as a purchase.
In a purchase, what is the term when the amount paid is less than the fair value?
Bargain Purchase
Which method is used when ownership is 21-50%?
Equity Method. This gives a company significant influence of the other company.
How are dividends treated under equity method accounting?
Dividends received from Investee reduce the investment account and are not income.
Which method is used for a stake of greater than 50%?
Consolidation.
Who prepares financial statements in a business consolidation?
Only parent company prepares consolidated statements, not subsidiary.
How is the subsidiary treated in a business consolidation with respect to legal entities?
When majority shares are purchased, separate legal entities continue to exist.
What elimination entries are performed in a business consolidation?
Intercompany sales (inventory, PP&E) and intercompany investments.
What is step acquisition?
Step acquisition is when the acquirer held previous shares accounted for under fair value method or equity method, and are now re-valued at fair value.
Results in a gain or loss in the current period.
What is a business acquisition?
Acquired companies continue to exist as a legal entity, their books are just consolidated with the parent company in the parent’s financial statements.
What is a business merger?
Merged companies cease to exist and only the parent remains.
What types of acquisition costs are expensed in the period occured?
Accounting, legal, valuation, consulting, and professional.
How are stock registration and stock issuance costs treated?
They are netted against stock proceeds.
