F1 M4 & M5 Acquisition Method Flashcards
With acquisition accounting, the net assets are based on _____ value. So inventory would be based on _____ less ____.
Fair market value
Based on selling price less disposal costs and a reasonable profit allowance
In an acquisition method business combination, registration and issuance costs are recorded as _____.
A direct reduction to the value of the stock issued by reducing APIC
In an acquisition method business combination, legal and consulting fees are (capitalized/expensed).
Expensed
In an acquisition, when the acquisition price exceeds the fair value of the net assets acquired, the assets and liabilities should be presented at ____.
Fair value
In an acquisition method business combination, debt security registration costs are (capitalized/expensed).
Capitalized
When a subsidiary is acquired with an acquisition cost that is less than the fair value of the underlying assets, what are the 3 things that must happen
- The balance sheet is adjusted to fair value, this creates a negative balance in the acquisition account
- The identifiable intangible assets are recognized at fair value, this increases the negative balance in the acquisition account
- The total negative balance in the acquisition account is recorded as a gain
Under US GAAP and an acquisition method, goodwill is the difference between the ___ value of the subsidiary purchased and the ___ value of the net assets acquired.
Fair value of the sub - Fair market value of the assets acquired
When acquiring a subsidiary, the parent company issued common stock. Do you use the Fair Value of the common stock at the date of the announcement or the date that the transaction closes?
The transaction closes
Journal Entry:
Recording the acquisition of a sub for cash
Dr Investment in subsidiary
Cr Cash
Journal Entry:
Recording the acquisition of a sub for parent common stock
Dr Investment in subsidiary
Cr Common stock (parent at par)
Cr APIC (for any additional amount above par)
What are the two distinct accounting characteristics of the acquisition method?
- 100% of the net assets acquired are recorded at fair value with any unallocated balance remaining creating goodwill;
- When the companies are consolidated the sub’s entire equity is eliminated
When acquiring a sub, if you don’t acquire 100% of the sub then you’ll need to create a ___.
Noncontrolling interest account
How do you calculate the noncontrolling interest?
Take the fair value of the subsidiary (at acquisition date) times the non controlling interest percentage
Noncontrolling interest + parent’s common stock + parent’s APIC + parent’s retained earnings =
Total consolidated equity
What does the mnemonic CARINBIG stand for?
Common stock Additional paid in capital Retained earnings Investment in sub Noncontrolling interest Balance sheet adjustment to FV Identifiable intangible assets at FV Goodwill/Gain
When an investor goes from non-control to control of a subsidiary (i.e. 30% ownership to 75% ownership) through an acquisition, the previously held equity investment must be adjusted to ____. This adjustment is recognized as a _____ by the investor.
Fair value
Gain or loss
Penn Corp paid $300,000 for 75% of the outstanding common stock of Star Co. This is the first line of a question with a lot of distractors. What is the noncontrolling interest that Penn should report on its acquisition date consolidated balance sheet under US GAAP?
$100,000
How do you calculate noncontrolling interest under the IFRS partial goodwill method?
NCI = Fair value of subsidiary net assets x NCI %
How do you calculate goodwill under the IFRS partial goodwill method?
Acquisition - (Net Assets Fair Value x Parent’s % of control)
What affect does a cash dividend by the sub have on our noncontrolling interest balance on our consolidated financial statements?
It causes a decrease
What affect does a cash dividend by the sub have on our retained earnings balance on our consolidated financial statements?
No effect, the transfer of cash from once company to another would be eliminated in consolidation
When acquiring a sub with an acquisition cost that is less than the fair value of 100% of the underlying assets acquired, adjust all balance sheet accounts to ____ and allocate remaining acquisition costs to the ____ of the 100% of identifiable intangible assets (goodwill).
Fair value
Fair value
