FAR 3 - Acquisition Method Flashcards
What is the journal entry to record acquisition method for cash?
Parent company internal journal entries
Dr: Investment in subsidiary
Cr: Cash
Closing date not announcement date!
What is the journal entry to record acquisition method for common stock?
Parent company internal journal entries
Dr: Investment in subsidiary
Cr: Common Stock @ Par
Cr: A.P.I.C. (FV of stock - Par Value)
Closing date not announcement date!
What are the two distinct account characteristics of acquisition method?
1) 100% of the net assets acquired (even if the percentage acquired is less) are recorded at fair value with unallocated balance creating goodwill
2) The subsidiary’s entire equity (common stock, a.p.i.c., and retained earnings is eliminated
Define CAR IN BIG
Common Stock, A.P.I.C. and Retained Earnings of subsidiary are eliminated
Investment in subsidiary is eliminated
Noncontrolling interest is created
Balance sheet of subsidiary is adjusted to FAIR VALUE
Identifiable Intangible Assets of subsidiary recorded at FAIR VALUE
Goodwill (or Gain) is required
What is CAR IN BIG journal entry?
Dr: Common Stock - subsidiary Dr: A.P.I.C. - subsidiary Dr: Retained Earnings - subsidiary Cr: Investment in subsidiary Cr: Noncontrolling interest Dr: Balance sheet adjustments to FV Dr: Identifiable intangible assets to FV Dr: Goodwill
What are other ways of saying CAR?
Common stock, A.P.I.C., Retained Earnings all mean
Assets - Liabilities = Equity
Assets - Liabilities = Net book value
Assets - Liabilities = CAR
How to calculate retained earnings if they give you ending retained earnings?
B: Beginning retained earnings ( acquisition date)
A: Add income
S: Subtract dividends
E: Ending retained earnings
Go backwards to find Beginning retained earnings
What is Investment in CAR IN BIG journal entry? The “I”
1) Original cost (fair value) on the date of acquisition is the consideration given
2) Business combination costs are expensed - legal fees, indirect costs
3) Bond issue costs are capitalized and amortized (Debit: Bond issue costs)
4) Stock registration and issuance costs are a direct reduction of the value of the stock issued (Debit: A.P.I.C.)
How are legal fees and finders fees different between acquisition method and equity method?
Legal fees and finder’s fees are capitalized in equity method.
Legal fees and finder’s fees are expensed in acquisition method
What is acquisition date noncontrolling interst computation? Balance sheet
Fair value of subsidiary
x Noncontrolling interest %
= Noncontrolling interest
What is noncontrolling interest after the acquisition date? Balance sheet
Beginning noncontrolling interest
+ NCI share of subsidiary net income
- NCI share of subsidiary dividends
= Ending noncontrolling interest
How is subsidiary net income computed? Income Statement
Subsidiary's income - Subsidiary's expenses = Subsidiary's net income x Noncontrolling interest % = Net income attributele to noncontrolling interest
What are the computations of noncontrolling interest in IFRS?
1) Full Goodwill Method
NCI = FV of subsidiary x noncotrolling interest %
2) Partial Goodwill Method
NCI = FV of subsidiary net identifiable assets x noncontrolling interest %
How is In Process Research and Development recorded?
- Recognize as an intangible asset separately from goodwill at the acquisition date
- It is an asset
1) Expense the “CONTINUING” R&D to complete project
2) If project success - amortize In Process R&D
3) If project is not success - impair/write off In Process R&D
Define Goodwill?
Premium paid to buy corporation
- Parent paid more than NBV + FV of assets
How to record new indefinte life and finite life assets?
1) Finite Life
Amortize over remaining life. Subject to two-step impairment test
2) Indefinite Life
Do not amortize. Subject to one-step impairment test
What is private company accounting alternative for acquisition, equity, and joint ventures?
1) You can elect to amortize goodwill (max 10 years). YOU CANT AMORTIZE IN PUBLIC COMPANIES GOODWILL
2) A few identifiable assets get lumped into goodwill:
- intangible assets such as noncompete agreements
- customer lists, order backlogs, customer contracts
What are the computations of goodwill in IFRS?
1) Full Goodwill Method
Goodwill = FV of subsidiary - FV of subsidary’s net assets
2) Partial Goodwill Method
Goodwill = Acquisition cost - FV of subsidary’s net assets acquired (x your percentage)
Define Gain?
Parent acquired at discount
Parent paid less than NBV
Goes on credit side
In period of acquisition how is net cash spent or received in acquisition reported in Statement of Cash Flows?
In investing section
What are step acquisition accounting treatment?
1) Non-control to Control
- Previous Common Stock adjusted to FV
- Recognize in I/S
2) Control to more control/less control
- Treat like treasury stock transaction (no gain or loss)
3) Control to non-control
- Sale = G/L goes to Income Statement
- Adjust remaining C/S to FV - Recognize adjustment in Income statement
