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Flashcards in Chapter 1 Deck (43):
1

consolidated financial statements

portray related companies as if they were a single company

2

Enterprise Expansion why

it allows for economies of scale

3

subsidiary

a company that a parent company controls most of the time through major ownership of stock

4

parent

controls a sub

5

pooling of interests

when wealthy individuals pool cash to purchase companies

6

special purpose entity

a financing vehicle that is not a substantive operating entity

7

Internal expansion

when assets in a company are sold to the separate entity and the other entity receives stock

8

spin off(not on the test)

when the stock of a new company is distributed to the owners of the old company without having them forfeit their shares in the old company

9

split off(not on test)

when the shares of the old company are exchanged to the shareholders for shares of the new company

10

external expansion

business combination where an acquirer obtains control of one or more businesses

11

control

the ability to direct policies and management

12

merger

business combination in which the acquired company's assets and liabilities are combined with those of the acquiring company making one entity

13

controlling ownership

the acquired company remains as a separate entity, but the majority of its stock is with a controlling entity this is a parent sub relationship

14

noncontrolling ownership

the purchase of a less than majority interest in another corporation does not usually result in a business combination or controlling situation

15

other beneficial interest

one company has an interest in another company that helps it these must be consolidated

16

pooling of interest method

outlawed by the FASB in 2007

17

Internal expansion transfer of assets

are at book value unless the Fair value is less then the asset is written down by the original company then given to the new company at the lower value

18

statutory merger

only one of the combining companies survives and the other is dissolved

19

statutory consolidation

both companies are dissolved and the assets and liabilities are merged to make a new company

20

stock acquisition

.when one company buys a majority of a company's stock and gains control forming a parent sub relationship

21

tender offer

when one company offers the shareholders of another company a price to buy their stock in a hostile takeover

22

controlling %

over 50%

23

value of assets in external expansion

they are appraised and valued at fair value

24

acquisition method

the acquirer recognizes all assets acquired and liabilities assumed and measures them at their acquisition date fair values

25

good will

an asset representing the value of future earnings there are three things that are valued
1. the FV of the consideration given by the acquirer
2. The FV of any interest in the acquiree already held by the acquirer if any
3. The FV of the noncontrolling interest in the acquiree

26

differential

the difference between the fair value of the consideration exchanged and the book value of the net identifiable assets

27

JE to record acquisition costs

Acquisition Exp
Cash

28

JE for acquisition

Cash
Inventory
buildings
goodwill
Current Liab
C/S
APIC

29

JE for acquired company before distribution of stock

Investment in Company Stock
Current Liabilities
Accum Depr
Cash
Inventory
buildings
Gain on sale

30

JE for the distribution of the acquirer stock on acquired company's books

C/S
APIC
RE
Gain
Investment in Acquirer Stock

31

how often is goodwill tested for impairment

annually

32

Goodwill once written down can

not be written up

33

bargain purchase

when the purchase price is less than the fair value of an asset or company. if this occurs a gain is recorded

34

JE for bargain purchase

Cash & Rec
Inventory
etc
Cash
Curr Liab
Gain

35

Acquisition of Stock, the Investment Account is valued at

the fair value of consideration
ex:
FV of stock is 100
Inv in Company 100
CS 80
APIC 20

36

Earning of an acquired company are included on the acquirers statement only

after the acquired date. income earned before the date is not included

37

Uncertainty situations

measurement period, contingent consideration, acquiree contingencies

38

measurement period

period of time where to account for uncertainty of fair values cannot exceed 1 year, but ends when the acquirer obtains the necessary information

39

JE for measurement period adjustment

Land
Goodwill
Impairment Loss
Land

40

Contingent Consideration

something that would change the fair value like an agreement on future profits

41

acquiree contingencies

something that relates to the acquiree that could change the fair value of the company

42

In process R&D

these should be recorded as assets and impaired annually

43

Noncontrolling equity prior to business combination should be

revalued at the date of the business combination