ACC 4100: Consolidations of Financial Information Review

Acquisition Method: Dissolution
Purchase Price Equals the Fair Value of Net Assets

This means no goodwill or gain!

Since you are dissolving, you only use the fair values in assets and liabilities

Generally, debit the assets/credit liabilities from the financial information that is given.

Do not credit investment! Record any equity accounts (only if you use C/S to pay)

Acquisition Method: Dissolution
Purchase Price Equals the Fair Value of Net Assets

Consolidating entries

Dr. current assets
Dr. PP&E
Dr. Intangibles
Cr. current liabilities
Cr. Long term debt
Cr. cash
Cr. C/S (only if you use to pay)(#shares*par value)
Cr. APIC

Acquisition Method: Dissolution
Purchase Price Exceeds the Fair Value of Net Assets

This is GOODWILL!!!

Since you are dissolving, you only use the fair values in assets and liabilities

Debit the assets/credit liabilities from the financial information that is given, if given the diff between FV & BV, use the FV for this instead of the financial info.

ex. Equipment, BV= 40,000 & FV= 30,000. Financial info states that equipment for the subsidiary is 50,000.
Dr. equipment 30,000

Record any equity accounts (only if you use to pay)

Acquisition Method: Dissolution
Purchase Price Exceeds the Fair Value of Net Assets


Consolidating entries

Dr. current assets
Dr. PP&E
Dr. Intangibles
Dr. goodwill (cash paid + C/S or Purchase price - (assets + liabilities)
Cr. current liabilities
Cr. Long term debt
Cr. cash
Cr. C/S (only if you use to pay)(#shares*par value)
Cr. APIC

Acquisition Method: Dissolution
Purchase Price Less than the Fair Value of Net Assets

This is a GAIN!!!!

Since you are dissolving, you only use the fair values in assets and liabilities

Generally, debit the assets/credit liabilities from the financial information that is given.

Do not credit investment! Record any equity accounts (only if you use to pay)

Acquisition Method: Dissolution
Purchase Price Less than the Fair Value of Net Assets

Consolidating entries

Dr. current assets
Dr. PP&E
Dr. Intangibles
Cr. current liabilities
Cr. Long term debt
Cr. cash
Cr. C/S (only if you use to pay)(#shares*par value)
Cr. APIC
Cr. gain on bargain purchase (cash paid + C/S or Purchase price -
(assets + liabilities)

Acquisition Method when separate incorporation is maintained

NOT DISSOLVED

Acquisition entry

Dr. investment in S
Cr. cash
Cr. C/S (only if you use to pay)
Cr. APIC

Acquisition Method when separate incorporation is maintained

NOT DISSOLVED

Consolidating entries

For this, do not just use FV, USE THE DIFFERENCE BETWEEN FV AND BV TO RECORD ASSETS AND LIABITILIES

Credit investment and debit equity accounts (only if you use to pay)

Acquisition Method when separate incorporation is maintained

Consolidating entries

Dr. goodwill
Dr. PP&E
Dr intangibles
Dr. C/S
Dr. APIC
Dr. Retained Earnings
Cr. Liabilities
Cr. Investment in S

How do we record retained earnings?

Only use the beginning balance!!!

Goodwill or Gain on bargain purchase

Purchase Price - (FV of assets and liabilities of subsidary)

If positive, goodwill
If negative, gain
If equal, nothing :)

Goodwill

an intangible asset that accounts for the excess purchase price of another company

Intangibles

an asset that is not physical in nature and can be classified as either indefinite or definite
ex: patents

Intangibles Examples

patents, copyright, franchises, goodwill, trademarks, and trade names, as well as software

Tangibles

an asset that has physical substance

Tangibles Example

Examples include inventory, a building, rolling stock, manufacturing equipment or machinery, and office furniture

Equity Method

20-50%
Must have significant influence

What are the three types of business combinations?

1. statutory merger

2. statutory consolidation

3. control without dissolution

control without dissolution

when you acquire legal control (>50% c/s) of another company

both companies remain in existence

What is one big reason why companies combine?

diversification of business risk