Chapter 1

Question 1

Business combination

Answer 1

Operations of two or more companies are brought under common control

Question 2

Business combination by intent are what two ?

Answer 2

Friendly,

Unfriendly

Question 3

Friendly

Answer 3

Boards of directors of the potential combining companies agree on the proposed combination

Question 4

Unfriendly (hostile)

Answer 4

Board of directors of a company targeted for acquisition is against the business combination.

Question 5

Business combinations by integration are what two types?

Answer 5

Horizontal integration
Vertical integration
Conglomeration

Question 6

Horizontal conglomeration

Answer 6

Same business lines and markets

Question 7

Vertical integration

Answer 7

Operations in different , but successive stages of production of distribution or both

Question 8

Conglomeration

Answer 8

Unrelated and diverse products or services

Question 9

Various types of business combination

Answer 9

Asset acquisition

Stock acquisition

Question 10

What is given up in a business combination

Answer 10

Cash
Debt
Stock
Combination of above

Question 11

Statutory merger

Answer 11

Company A + company B = Company A

Company A acquires all of assets of company B

Question 12

Journal entry for statutory merger

Answer 12

Dr. assets of company B
Cr. Liabilities of company B
Consideration

Question 13

Statutory consolidation

Answer 13

Company A + Company B = company C

A new coaling is created.

Question 14

Consolidation financial statements (stock acquisition)

Answer 14

Company A + company B = consolidated A company A acquires stock of company B

Question 15

Journal entry of consolidated financial statements

Answer 15

Dr. investment In B

Cr. Consideration.

Question 16

Reasons why companies combine

Answer 16

Cost advantage 
Lower risk
Fewer operating delays 
Avoidance of take overs 
Acquisition of intangible assets

Question 17

Goodwill

Answer 17

Purchase price

- net asset (fair value)

Question 18

Treatment of acquisition expenses

Direct and indirect cost - expenses

Answer 18

Dr. direct expense
Indirect expense
Cr. Consideration

Question 19

Treatment of acquisition expenses

Security issuance cost - capitalized to occ

Answer 19

Dr. Occ

Cr. Consideration

Question 20

Contingent consideration slide 19. (Picture)

Answer 20

Purchase agreement to provide the purchasing company an additional consideration of the seller if certain future events or transaction pa occur

Question 21

Bargain purchase

Answer 21

When fair value of identifiable net assets (asset less liability) exceeds the total cost of the acquired company

Question 22

Purpose of consolidated statements

Answer 22

To present the operating results and the financial position of a parent and all its subsidiaries was if they are one economic entity

Question 23

Parent

Answer 23

Acquiring company

Question 24

Subsidiary

Answer 24

Acquired company

Question 25

Non controlling interest

Answer 25

Remaining shareholders

Question 26

Control

Answer 26

Possession, direct or indirect, of the power to direct management and other policies of another entity , whether through the ownership of voting shares, by contract or otherwise.

Question 27

Purpose of consolidated statements

Answer 27

To present the operating result and the financial position of a parent and all its subsidiaries as if they are one economic entity

Question 28

Circumstances when majority owned should be excluded from consolidated entity

Answer 28

Control does not rest with the majority owner

Subsidiary operates under governmentally impose uncertainty so severe as to raise significant doubt the parents control