Acquisition Method: Part 1 (F4:M4)

Question 1

in an acquisition method business combination, how are the following recorded?

registration and issuance cost
legal and consulting fees

Answer 1

as a reduction of APIC

expensed

Question 2

how are acquisition costs accounted for?

Answer 2

expensed as incurred

Question 3

what does the acquisition price (FV) = ?

Answer 3

investment in sub

Question 4

what is the eliminating JE to consolidate a sub? (CAR IN BIG)

Answer 4

CS (d
APIC (d
RE (d

Investment in sub (c
Noncontrolling interest (c

BS adjustments to FV (d
Identifiable intangible assets to FV (d
GW (d “plug number”

*acquisition date values

Question 5

what is the difference between cost method and equity method. Are these methods used for internal accounting or external reporting?

Answer 5

cost:
investment in sub account does not change after acquisition date (i.e., not impacted by income or div). Dividends are recorded as dividend income by parent. No adjustment made for income from sub.

equity:
income from sub increases investment account
dividend decreases investment account

*both methods used for internal accounting. Regardless of method used, investment account is eliminated in consolidation