Test 1 Flashcards
What are the three forms of business combinations?
Merger, consolidation, acquisition
What is the acquisition method?
Any business combination that takes place.
What is a merger?
A company + B company = A company OR B company
The name of one stays the same
What is a hostile takeover?
The company being acquired does not approve of the buyout and fights against the acquisition.
If we do have the ability to influence a company, and the company then pays out a divided, what is the journal entry?
Debit: Cash
Credit: Investment in ____________ company
We credit the investment b/c the divided decreased the owners equity
How much stock must be owned to acquire control of a company?
50%
Do you make a mark to market entry when using the equity method?
No
If we do have the ability to influence that company, what journal entry is needed at 12/31? Where do we get the dollar amount?
Debit: Investment in _________________ company
Credit: Equity in investment earnings
The amount we use is our share of net income
What kind of account is equity in investment earnings?
It is a revenue account required by GAAP.
What is the difference between a merger and consolidation?
A new name.
*consolidation= the company creates a new name
*merger= the name stays the same
Which business combination has a parent company and a subsidiary company?
Acquisition
How many sets of accounting statements does a merger or consolidation require?
One
What is a tender offer?
The acquiring company appeals directly to the shareholders.
What is consolidation?
A company + B company = C company
*the company creates a new name
What is an acquisition?
A company + B company = A company AND B company
Ex. Exonmobile
What is a friendly takeover?
Both companies agree to a merger or acquisition.
What are trading securities?
Securities to be sold in the near future.
What does available for sale mean?
To be sold in the distant future.
What does held to maturity mean?
This means holding to the maturity date.
this is for bonds only
Which financial statement do you report trading securities on?
Income Statement
Which financial statement do you report available for sale securities on?
Balance Sheet
*under owners equity
under the other comprehensive income
What is the trading goal?
The goal is to make money NOT gain control.
A company taking control or who has the ability to control another company MUST use what method of accounting?
Equity method
How much stock must be owned to have the ability to significantly influence another company?
20-50%
- but it can be lower!
If we do not have the ability to influence a company, what must we do at the end of the year?
Mark to market
