Intro to Business Combinations pg 35

Question 1

Business Combination

Answer 1

• Transaction or event where acquirer obtains control of a business
• Control: Voting control and greater than 50% voting interest

Question 2

Acquisition Method

Answer 2

Used to record all business combinations for which acquisition date is on or after first annual reporting period beginning on or after Dec 15, 2008

alternative methods for business combinations merger and consolidation

Question 3

Merger

Answer 3

One preexisting entity acquires either group of assets that constitute business or controlling equity interest of another preexisting entity and “collapses” acquired asset or entity into acquiring entity (only one entity survives in the end)

Question 4

Consolidation

Answer 4

new entity consolidates net assets or equity interest of two (or more) preexisting entities (New entity created a+b=c)

Question 5

Acquisition

Answer 5

• One preexisting entity acquires controlling equity interest of another preexisting entity, but both continue to exist and operate as separate legal entities (Both entities survive. A still A, B still B) Kind of like Hilton and Behlen
• Acquirer records ownership of stock of acquiree as LT Investment DOES NOT record assets/liabilities of acquiree on books

-DR: Investment in Subsidiary
CR: Consideration Given

-Consolidated FS ARE usually needed

Question 6

Merger/Consolidation

Answer 6

DR: Assets (per acquisition method)
CR: Liabilities
CR: Consideration Given

No consolidated FS

Question 7

Income Determination at Date of Combination

Answer 7

• Only acquirer’s operating results (income) up to the date of combination enter into determination net income as of date of combination
• Acquiree’s operating results up to date of combo are part of what acquirer purchases and makes it an investment so they are NOT part of consolidated net income
• Acquiree’s operating results up to date of combo will be closed to it’s RE
• Acquiree’s RE as of date of combo is part of equity “pd for” by acquirer when makes its investment
• Acquiree’s RE as of date of combo will be part of acquiree’s equity eliminated against acquirer’s investment acct

Question 8

Income Determination @ End of Yr of combo & subsequent Yrs

Answer 8

End Yr of Combo: Acquirer’s income/loss for entire yr PLUS acquiree’s income/loss AFTER date of combo
Subsequent Yrs to Combo: Both acquirer’s and acquiree’s income/loss for entire reporting period are consolidated income/loss