advanced issues exam 2

Fair value

Acquisition accounting (noncontrolling interest measured at ___ ___

control

The concept of _____ relates to the ability to direct policies and management Traditionally, _____ over a company has been gained by acquiring a majority of the company's common stock

SPE special purpose entity

___ is in general, a financing vehicle that is not a substantive operating entity, usually one created for a single specified purpose. An ______ may be in the form of a corporation, trust, or partnership. Enron Corp., one of the world's largest companies prior to its collapse in 2001, established many SPEs, at least some of which were intended to manipulate financial reporting.

Purchase Accounting

_____ _____ treated the purchase of a business much like the purchase of any asset. The acquired company was recorded based on the purchase price that the acquirer paid. Individual assets and liabilities of the acquired company were valued at their fair values, and the difference between the total purchase price and the fair value of the net identifiable assets acquired was recorded as goodwill. All direct costs of bringing about and consummating the combination were included in the total purchase price

external expansion

business combinations (through acquisition)

Tender

A _____ offer invites the shareholders of the other company to _____ or exchange, their shares for securities or assets of the acquiring company. If sufficient shares are ____ed , the acquiring company gains voting control of the other company and can install its own management by exercising its voting rights.

merger

A ______ is a business combination in which the acquired company's assets and liabilities are combined with those of the acquiring company. Thus, two companies are _____ into a single entity. In essence, the acquiring company "swallows" the acquired company.

Controlling Ownership

A business combination in which the acquired company remains as a separate legal entity with a majority of its common stock owned by the purchasing company leads to a parent-subsidiary relationship Accounting standards normally require that the financial statements of the parent and subsidiary be consolidated for general-purpose reporting so the companies appear as a single company.

voting stock

Control is usually obtained through majority ownership of ___ ___

1. pooling of interests 2.acquisition method

FASB eliminated the ____ 1.____ method in 2001, leaving only a single method, purchase accounting. Then, in 2007, the FASB issued the revised standard (ASC 805) that replaced the purchase method with the 2. ______ which is now the only acceptable method of accounting for business combinations

Goodwill

Fair value of identifiable net assets is used to measure ____ under the acquisition method

Non controlling interest

The purchase of a less-than-majority interest in another corporation does not usually result in a business combination or controlling situation In its financial statements, the investor company reports its interest in the investee as an investment with the specific method of accounting for the investment dictated by the circumstances

statutory consolidation

a business combination in which both combining companies are dissolved and the assets and liabilities of both companies are transferred to a newly created corporation AA company and BB company become CC company

Primary Beneficiary entity and prim benef. consolidate f/s

a company that has the ability to make decisions significantly affecting the results of another entity's activities or is expected to receive a majority of the other entity's profits and losses is considered to be that entity's ________ ____

internal expansion in general, a financing vehicle that is not a substantive operating entity, usually one created for a single specified purpose. An SPE may be in the form of a corporation, trust, or partnership. Enron Corp., one of the world's largest companies prior to its collapse in 2001, established many SPEs, at least some of which were intended to manipulate financial reporting.

creating a business entity in general, a financing vehicle that is not a substantive operating entity, usually one created for a single specified purpose. An SPE may be in the form of a corporation, trust, or partnership. Enron Corp., one of the world's largest companies prior to its collapse in 2001, established many SPEs, at least some of which were intended to manipulate financial reporting. THIS IS WHAT?

internal expansion

creating a business entity (at book value)

Goodwill

is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized consists of all those intangible factors that allow a business to earn above-average profits

stock acquisition

occurs when one company acquires the voting shares of another company and the two companies continue to operate as separate, but related, legal entities. neither of the combining companies is liquidated, the acquiring company accounts for its ownership interest in the other company as an investment have a parent-subsidary relationship and still present consolidated f/s

spin off

occurs when the ownership of a newly created or existing subsidiary is distributed to the parent's stockholders without the stockholders surrendering any of their stock in the parent company. Thus, the company divests itself of the subsidiary because it is owned by the company's shareholders after the __ ___

split off

occurs when the subsidiary's shares are exchanged for shares of the parent, thereby leading to a reduction in the parent company's outstanding shares.

acquistion accounting

reated the purchase of a business much like the purchase of any asset. The acquired company was recorded based on the purchase price that the acquirer paid. Individual assets and liabilities of the acquired company were valued at their fair values, and the difference between the total purchase price and the fair value of the net identifiable assets acquired was recorded as goodwill. All direct costs of bringing about and consummating the combination were included in the total purchase price

one single entity

How many entity's survive when an Acquisition of net assets happens?

impairment

Under acquisition method, Goodwill is no longer amortized, but tested for _____

acquiree and acquirer continues as separate legal entity

What happens to the entity's after an acquisition of Stock?

statutory merger

a type of business combination in which only one of the combining companies survives and the other loses its separate identity. The acquired company's assets and liabilities are transferred to the acquiring company, and the acquired company is dissolved, or liquidated. AA company and BB comp. merge to become AA company

acquisition method,

all business combinations must now be accounted for using the ____ _____