F4/M4 Acquisition Method: Part 1

Question 1

(T/F): Record FV of acquisition at the date the transaction closes, not the announcement date

Answer 1

True

Question 2

Internal JE - Record the acquisition through issuance of common stock

Answer 2

Dr: Investment in Subsidiary
Cr: Common Stock (Parent @ Par)
Cr: APIC (Parent FV - Par)

Question 3

(T/F): Acquisition method accounts for 100% of the net assets acquired at Fair Value with any unallocated purchase price going to Goodwill

Answer 3

True

Question 4

(T/F): Under the Acquisition Method, when the companies are consolidated, the subsidiary’s entire equity (CS, RE, and APIC) is eliminated (not reported)

Answer 4

True

Question 5

Consolidating Adjustments for external reporting (Done on workpaper, not company books)

Answer 5

the C.A.R. i’m I.N. is B.I.G.

C. Common Stock is eliminated
A. APIC is eliminated
R. Retained earnings is eliminated

I. Investment in Subsidiary is eliminated
N. NCI is created

B. Balance sheet of subsidiary is adjusted to Fair Value at
acquisition date
I. Identifiable Intangible Assets of the Subsidiary are recorded at their Fair Value
G. Goodwill (Gain) is recorded (PLUG)

Question 6

(T/F): Consolidated equity = Parents equity (+) NCI

Answer 6

True

Question 7

Calculation of “Investment in Subsidiary” account

Answer 7

Original cost measured at fair value of consideration at the acquisition date

• SEC filing fees (stock registration and issuance) are charged against APIC OF PARENT
• Direct and indirect expenses are not capitalized

Question 8

JE - Contingent consideration

Answer 8

Dr: Add to “Investment in Subsidiary”
Cr: Estimated Liability for Contingent Consideration

Question 9

Increases in Contingent consideration are…

Answer 9

Dr: Expense
Cr: Estimated Liability for Contingent Consideration

Question 10

(T/F): We use the equity method to account for the NCI portion of the entity after the acquisition date

Answer 10

True; use BASE formula

Question 11

Total Consolidated Equity =

Answer 11

NCI

(+) PARENTS CAR

Question 12

(T/F): Losses can create a NEGATIVE balance in NCI

Answer 12

True

Question 13

(T/F): In-process R&D is considered an Identifiable Intangible Asset

Answer 13

True

Question 14

(T/F): Under the acquisition method, test Goodwill for Impairment

Answer 14

True;
Goodwill = FV of Subsidiary (-) FV of Subsidiary Net
Assets

Question 15

(T/F): Goodwill = FV of Subsidiary (-) FV of Subsidiary Net Assets

Answer 15

True

Question 16

(T/F): CAR = BV of Net Assets

Answer 16

True

Question 17

Calculation of Full Goodwill Method for IFRS (same as GAAP)

Answer 17

FV of sub (-) FV of sub net assets

Question 18

Calculation of Partial Goodwill Method for IFRS (goodwill we paid for)

Answer 18

Acquisition Cost (-) FV of sub Net Assets ACQUIRED

Question 19

(T/F): Measurement period adjustments affect the balance of Goodwill or the Gain recognized

Answer 19

True; any adjustments to amortization or depreciation do not required restatement (prospective adjustment)

Question 20

(T/F): Measurement period cannot exceed one year from acquisition date and ends when information is available

Answer 20

True

Question 21

(T/F): A bargain purchase in a business acquisition is recorded as a gain in earnings at the acquisition date

Answer 21

True

Question 22

(T/F): If a company holds 50% or more of a company, the company must use the consolidated method of accounting

Answer 22

True;

The equity method requires significant influence and less than 50% ownership

Question 23

The net cash spent on an acquisition is recorded in the investing activities section

Answer 23

True