Studied by 10 people
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?
statutory merger
statutory consolidation
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
Note
Flashcard