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