Test 1 Adv Acc

Identifiable Excess

amount paid over the book value for assets

goodwill

the difference between the tangible assets we are acquiring when we purchase the company and consideration given

Control

relates to the ability to direct policies and management

controlling ownership

- co. remain separate legal entities with the majority of the subsidiary's stock owned by the purchasing company

- report consolidated FS

- continue on separately but file as one co. on FS

noncontrolling ownership

- another owner but they don't have "control"

- purchase of a less than majority interest

acquisiton accounting

acquirer recognizes all asset acquired and liabilities assumed in a business combination and measures them at their acquisition date fair values

Acquirer values acquired company based on

FV of consideration given + FV of any NCI not acquired by acquirer= tl. FV of subsidiary

You are to expense direct costs of issuing stock

FALSE, you must offset it to APIC

the costs of bringing about and consummating a business combination are charged to an aquisition expense as _________

incurred

T/F: Sometimes we will see stock issuance cost put into an account called "deferred stock issuance costs" and stated separately below APIC

Ture

Internal expansion is done by

creation

Statutory Merger

- two companies merge into a single entity, one company survives

- the acquired business's assets + liabilites are combined with those of the acquiring company

Statutory Consolidation

- combining companies are dissolved and transferred into a newly created corporation

(example: BKD, DHG, creating themselves into forvis)

Statutory Acquisition

- ONE company acquires the voting shares of another company and the two companies continue to operate as separate, but related, legal entities

- at YE you will consolidate FS

Difference between statutory mergers and consolidations v. statutory acquisisitons?

Mergers and consolidations deal with ASSETS and LIABILITES being combined, whereas acquisitions deal with the STOCK being acquired

External acquisition is created through

acquisition/purchase

- 3 Legal forms (statutory merger, salutatory consolidation, statutory acquisition)

Bargain Purchases

When the FV of consideration given < the FV of net assets

FMV given > FMV net assets

goodwill

FMV given < FMV net assets

bargain purchase

FMV given = FMV of net assetst

neither GW or BP

Measurement Period

- ASC 805 allows this time to proper ascertain FV

- period ends once acquirer obtains necessary info as of acquisition date

- may not exceed one year

Consideration given - net identifiable assets

differential equation

total condieration given-fair value of net identifiable assets

goodwill equation

net identifiable asset equation

total assets-current liablilities

use deffered stock issuance when...

the parent issues its own stock to acquire the subsidiary

Fair Value Method

- insignificant influence (<20%)

FV Balance Sheet

- represents current share of net assets/liabilities in subsidiary

- adjust to FV at end of each year

FV Income Stmt

- represents current share of income from subsidiary

- recongnize dividends from investee

- offset to make investment=its current FV through unreal g/l

Equity Method

- >20% ownership

- significant influence

Equity Method BS

- original investment (purchase)

- Income/loss

- Dividends decrease the investment

Equity Method IS

- current share of income

(recognize investment income)

**Dividends DO NOT affect IS under Equity method. Only reduce investment

T/F: carrying value will almost never equal the original cost of the investment UNLESS all income is distributed each year

True

What is consolidation?

combining the individual assets, liablilites, revenues, and expenses of 2 or more related companies as if they were part of a single entity.

**makes 2 separate entities appear as one by using each set of FS and eliminating entries

With consolidation which method do you use and then use eliminating entries to avoid double accounting at end of year

equity method used with consolidation

Consolidation worksheet parts

- income statement

- statement of changes in S/E

- balance sheet

Where does the RE come from in consolidated?

RE ending balance is carried down rom stmt of retained earnings to the balance sheet

Things we are eliminating in consolidated FS

- parent's investment account

- parent's income from sub

- sub's equity accounts (C/S, RE, APIC)

Consolidated NI =

partent's net income

Consolidated RE =

parent's retained earnings

Combined Financial Statements

prepared for a group of companies when no one company in the group owns a majority of C/S of any other company in the group

- Prepared when: individual, not a corporation owns or controls multiple companies

- prepared essentially the same as CFS

Why might someone expand internally?

- est. clear lines of control

- tax incentives

- regulatory reasons

- protection and legal liability

- disposing a portion of existing operations

When a parent company creates a subsidiary through internal expansion, the parent's JE to transfer assets to the newly created entity will include a debit to...

Investment in Subsidiary

A common way to obtain corporate control is to

a. by purchasing > 50% of an entity nonvoting preffered stock

b. by bribing the CEO

c. palying a video game about that co

d. by puchasing >50% of entity common stock

e. none of the above

d. by purchasing >50% of entity C/S

_______ is the only way to account for external expansion

acquisition method

___ is used when dealing with internal expansion

book value

Total fair value formula

consideration given + non-controlling interest's fv

Acquisistion accounting requires that all assets and liablilites must be measured at ______

acquisition date fair values

What to do with goodwill

- must capitalize as an asset

- can't amortize, must test for impairment

- imairment measured by carrying value exceed the fair value

If company A purchases 45% of oustanding c/s of company B, the investmetn in company be should be accounted for

a. at FV

b. at cost

c. as a consolidated subsidary

d. as an equity investment method

e. none

d. as an equity method investment

For securityes carred at FV, an investee's dividends declared would

a. be eliminated in consolidation

b. be investor's income form investment

c. decrease teh investor investment accoutn

d. increase investmetn account

e. none

b. be investor's income from investment

Under the equity method, an investee's dividends declared would

a. be eliminated in consolidation

b. be investor income form investment

c. decrease investors investment acct

d. increase investor investment account

e. none

c. decrease investor investment account

If the parent accounted correctly for the equity method, _______ should equal parent's retained earnings

consolidated retained earnings

If the parent accounted correctly for the equity metod, ________ should = paretn's retained earning

consolidated net income

Total SE Formula

Total ass-AP-NP

Primary benefit of consolidated financial statements is that they

a. provide info directly applicable to the needs of regulators

b. obscure data of individual companies

c. present data of two or more entitites that clearly reports their individual performance

d. give a picture of the use of resources under the parent's control

e. none

d. give a picture of the use of resources under the parent's control

P owns 60 percent of X and 75

percent of Y. If X and Y jointly own

100 percent of Z, under what

circumstance would P not be deemed

to control Z?

a. Z is a bank.

b. Z's products are largely sold overseas.

c. Z is currently in Chapter 11 bankruptcy.

d. Z has a CEO known to have a bad temper

and a serious gambling habit.

e. None of the above.

c. Z is currently in Chapter 11 bankruptcy

The noncontrolling interest in a

corporation can best be described as

a. a group of disinterested shareholders

who rarely vote on company issues.

b. all employees below the manager level.

c. all shareholders other than the parent

company.

d. a group of investors who plan to sell

their stock within the next twelve

months.

e. None of the above.

c. all shareholders other than the parent

company.

The primary difference in

consolidating a less-than-wholly-

owned subsidiary relative to a wholly

owned subsidiary is

a. income and net assets of the subsidiary

must be divided between the parent and

the NCI shareholders.

b. the title of the worksheet must specify

"Less than wholly owned."

c. you only consolidate the parent's %

ownership.

d. There is no difference.

a. income and net assets of the subsidiary

must be divided between the parent and

the NCI shareholders.