ACC416 ch 1-3 test
upstream sale is from
investee to investor
downstream sale is from
investor to investee
how to account for on the date of acquisition: indirect costs
expense as inccured
how to account for on the date of acquisition: direct costs
expense as incurred
factors that result in significant influence
-20-50% of stock -investor representation on board of directors -investor participation in policy making process -material intra-entity transactions -interchange of managerial personnel -technological dependency
private company goodwill options - 2014 update
-allows to elect to amortize over 10 years, treating is definite lived intangible -complexity and expense of impairment tests is not practical every year for small companies -still does need to be periodically tested for impairment if it seems likely
what is included in consideration transferred?
-cash, equity, and debt -fair value of contingent consideration
private company goodwill options - 2018 update
-do not have to separately identify intangible assets that are customer related and non-competition agreements -allows to flush all to goodwill, which then must be amortized over 10 years
which assets or liabilities are not amortized over a useful life
-goodwill -intangibles -trademarks
how is goodwill treated
-intangible indefinite life asset -attributed to its related reporting unit -tested for qualitative or quantitative impairment yearly -goodwill is amortized to match fair value of unit, but not below zero
What accounts are eliminated upon consolidation
-investment in subsidiary -Sub's Equity accounts (common stock, additional PIC, RE, Goodwill)
what happens under the equity method when investee losses exceed investor's investment amount
-investment is written down to zero -investor keeps track of income/loss on a separate worksheet -when the original investment is made back up, positive amount is brought back to the balance sheet
recognizable intangibles have
-lack of physical substance -arise from contractual or other legal rights -can be sold or separated from the acquired business
categories of intangibles
-marketing -customer -artistic -contract-based -technology based
premise of pushdown accounting/advantages
-since reporting entity is changing, fair values should be recognized on books of the sub -if sub is later sold, assets should already be at closer fair value, so that an improper amount of gain or loss is not reported -more accurate representation on sub's side
Acquisition Method: retained earnings value
-sub's RE eliminated -parent's reduced for professional fees if applicable
Acquisition Method: additional paid in capital value
-subs APIC eliminated -parent's reduced for stock issuance costs if applicable
Acquisition Method: goodwill value
consideration transferred - fair value of assets/liabilities, given that fair value of assets/liabilities is greater
journalizing when subsidiary remains
consolidating entries take place each time financial statements are prepared
journal entry for deferred recognition of unrealized intercompany profits
equity in investee income investment in Company
Acquisition Method: land and inventory value
adjusted to fair value, added to land and inventory of parent
Acquisition Method: liabilites value
adjusted to fair value, added tp liabilities of parent
preexisting goodwill on the books of acquiree
not included in net assets of acquiree or transferred to acquirer
statutory merger
one company obtains all assets and liabilities of another, or acquires all capital stock. The acquiree disolves
how many entities remain after a statutory merger?
only one legal entity, the acquiring company
contingent consideration
part of consideration transferred
journalizing when subsidiary is dissolved
permanent consolidation to the books of the acquiring company. Entries only have to be made once
how to account for changing from equity to fair value?
prospectively
how to account for changing from fair value to equity?
prospectively
stock issuance costs
reduction to paid in capital
how to calculate deferred recognition of unrealized intercompany profits
remaining ending inventory * gross profit percentage * ownership percengate
bargain purchase option
reported as a gain on income statement