Flashcards in Business Combinations and Consolidations Deck (12):
Acquisition costs - Fees of finders and consultants
Expensed in the period incurred
Acquisition costs - Registrant fees for equity securities issued
A reduction in the issue price of the securities (APIC)
Business combination accounted for as an acquisition
The fair market value of the net assets is used as the valuations basis for the combination
Exception to consolidated financial statements
Consolidated financial statements are typically prepared when on company has a controlling financial interest in another UNLESS the investee (sub) is in bankruptcy.
Calculate the differential - "goodwill"
Cost of the investment
+FMV of previously held interest
+FMV of non controlling interest
compare subtotal to the FMV of net assets
if subtotal > FMV of net assets = there's good will
JE that records the excess of cost over book value
Dr. Stockholder equity (R/E, APIC, C/S)
Cr. Investment (cost)
Cr. non controlling interest
The portion of the subs SHE that is not eliminated is reported as noncontrolling interest in the equity section of the consolidated B/S.
The parent's SHE equals the consolidated SHE plus the noncontrolling interest.
How should the parent company determine the amounts to be reported for the sub's equip and long term debt?
All assets and liabilities should be reported at Fair value.
Fair value of the sub's identifiable assets exceed cost of the acquisition
The difference is a bargain purchase. This is a gain recognized on the I/S in the current period.
Subsidiary's Financial Statements
When a sub prepares seperate F/S, intercompany receivables and payables should be reported in the B/S as a seperate line item.
Parent Company F/S
All intercompany receivables and payables should be eliminated to avoid overstating assets and liabilities.
Determination of whether an entity is a Variable Interest Entity (VIE) and which enterprise should consolidate
An entity should determine if it is the primary beneficiary on the date it becomes involved with a VIE. This should be reassessed on an ongoing basis.