Business Combinations & Consolidations - 18 Flashcards
(35 cards)
A normal business consists of what?
Inputs & Processes (Outputs are not required)
The Acquiree is who?
The entity that is being acquired
The Acquirer is who?
The entity doing the acquiring
What are the four steps in applying the acquisition process/
- Identify the acquier
- Determine the acquisition date
- Recognize & measure identifiable assets, liabilities assumed, and noncontrolling (minority) interest in the acquiree
- Recognize & measure goodwill, or recognize a gain from a bargain purchase
When are consolidated financial statements required?
When more than 50% of the oustanding voting stock will be taken over
After the date of impairment, when is Goodwill tested?
Annually
Can you have intercompany accounts open with a consolidation?
No. Because the idea of a consolidation is one set of books. These accounts must be eliminated
What types of Intercompany transactions are there?
- Intercompany Sales Transactions
- Transactions in fixed assets
- Intercompany debt/equity trnasactions
- Intercompany Inventory transactions
How do Intercompany Bond Transactions work?
Acquiree issues bonds to the public.
Acquiree JE:
Cash 120,000
Bonds Payable 100,000
Premium 20,000
Acquiror JE (if 50% of Acquiree Bonds are bought):
Invest Bonds 50,000
Cash 50,000
When Consolidating (Acquiror must eliminate 50% of Debt - Eliminating Entry)
Bond Payable 50,000
Premium 10,000
Investment 50,000
Gain 10,000
What is the worksheet used for?
To consolidate the Acquiror and Acquiree’s books
What is done with a gain from a bargain purchase?
It is recognized as income immediately
Is Goodwill listed with intangible assets?
No
Noncontrolling interest is measured by using what prices on what date for share not held by the acquiror?
Active Market Prices on the Acquisition date
The the fair values of the acquirer’s investment and the non-controlling interest have the be the same on a per-share basis?
No
Acquisition related costs are treated as what kind of expense?
A period expense although costs of registering debt and equity securities are not included as they are recognized in accordance with GAAP (by Debiting APIC & Crediting cash for the amount of the expense)
Can an acquiror & acquiree consolidate of the control is temporary?
No
What is a Variable Interest Entity (also known as Special Purpose Entity)?
An instance where control is achieved through arrangements that do not involve ownership or voting interests
Who is the Primary Beneficiary of a Variable Interest Entity? And does the Primary Beneficiary have to consolidate?
Any entity that has financial controlling interest.
Yes
What two conditions must exist for an entity to have controlling financial interest in a variable interest entity?
- The entity has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance
- The entity has the obligation to absorb the losses of the VIE and recognize the gains
Is a qualitative or quantitative approach used to determine if an entity has power to control a variable interest entity?
Qualitative
If the acquiror issues stock to purchase the acquiree, what is the JE?
Investment DR
C/S CR
APIC CR
What is the first step in calculating Goodwill?
Acquisition Cost \+ FV of previously held shares \+ FV of non-controlling interest - Book Value of Acquiree = Differential (Includes Increase/Decrease in Acquiree's assets + Goodwill)
What is the second step in calculating Goodwill?
Compute the Fair Value of the Net Identifiable Assets
Book Value
+ Asset Write-Ups
+ Newly Identified Intangibles
= Fair Value of Net Identifiable Assets
What is the third step in calculating Goodwill?
Compute Goodwill
Acquisition Cost \+ FV of previously held shares \+ FV of non-controlling interest - FV of Net Identifiable Assets = Goodwill or (Gain on Bargain Purchase)
