Recording Business Combinations

Question 1

What does the legal form of a business combination determine?

Answer 1

Which accounts to use

Question 2

What does the acquisition method of accounting in business combinations determine?

Answer 2

The amounts at which the accounts will be valued

Question 3

In a legal consolidation, which entity is deemed to be the acquirer?

Answer 3

If only equity interest is issued by new entity, one of the preexisting entities must be determined to be the acquirer, not the new entity

Question 4

Is preexisting Goodwill recognized in the assets acquired in a business combination?

Answer 4

No

Question 5

What accounting transaction is required when cost of the investment is

Answer 5

Recognize gain for bargain purchase amount.

Question 6

What method is used by a parent company to carry “investment in subsidiary” on its books?

Answer 6

Cost, Equity or other method

Question 7

What is the journal entry by an investor to record an acquisition?

Answer 7

DR: Investment in Subsidiary

CR Cash/Other Consideration (Cost)

Question 8

Where is a Subsidiary reported?

Answer 8

In the consolidated financials, unless parent lacks control

Question 9

List the journal entry by the investor to record a merger/consolidation using the acquisition method.

Answer 9

DR: Assets acquired (at FMV)
CR: Liabilities assumed (at FMV)
CR: Cash/Other Consideration Paid (Cost)