Chapter 2 LearnSmart

What accounting procedures are appropriate when an acquired firm is dissolved immediately following a business combination?

The surviving company records the dissolved company's assets and liabilities on its financial records.

Select all that apply Why are consolidated financial statements prepared following a business combination? - In any business combination, one or more companies cease to exist as separately controlled entities. - It is presumed that consolidated statements are necessary for a fair presentation. - When one business entity controls the others in a business combination, a single reporting entity exists. - There is a presumption that consolidated statements are more meaningful than separate company financial statements.

There is a presumption that consolidated financial statements are more meaningful than separate financial statements.

True or false: According to the acquisition method, the acquiring firm records all assets acquired and liabilities assumed in a merger transaction at their individual acquisition date fair values.

True

True or false: Acquisition-date fair values are used to measure assets acquired and liabilities assumed across all business combinations.

True

True or false: Fair value is the primary measurement attribute used in accounting for a newly acquired company in a business combination.

True

True or false: Majority stock ownership does not always indicates an exclusive ability for one entity to exercise control over another.

True

True or false: The reported balances for a business combination are the same regardless of whether the acquired firm is dissolved or not.

True

True or false: When a bargain purchase occurs, the valuation basis for the acquired firm is the fair value of the assets received less liabilities assumed, not the consideration transferred.

True

Which of the following best describes a statutory consolidation? - One company acquires the net assets of another firm and the acquired firm then is dissolved as a separate legal entity. - Two or more companies transfer their assets (and liabilities) or capital stock to a newly formed entity. - Both of the companies involved retain their separate legal existences. - One company acquires a majority interest in another company's voting stock.

Two or more companies transfer their assets (and liabilities) or capital stock to a newly formed entity.

Which of the following is an attribute of a statutory consolidation? - Two or more existing companies are united under the ownership of a newly created company. - All of the companies involved in the business combination retain their separate legal existences. - One company acquires another company that is subsequently dissolved by the surviving firm. - An acquiring company gains a controlling, but less than 100 per cent, interest in an acquiree's voting stock.

Two or more existing companies are united under the ownership of a newly created company.

Contingent consideration is

a contractual provision to pay additional amounts to former owners of a business based upon achievements of future performance measures.

Consolidated financial statements are typically prepared when one company has

a controlling financial interest over another company.

Attorney fees paid for service provided related to a business combination are accounted for as

a current period expense.

When the consideration transferred in a business combination is less than total net fair value of the identifiable net assets received, the excess is recognized as

a gain on bargain purchase.

Costs incurred to register and issue securities in connection with a business combination are recorded as

a reduction of additional paid-in capital.

The purpose of consolidation entry A is to

adjust the subsidiary asset and liability accounts to their acquisition-date fair value.

Consolidation entry A for an acquisition-date worksheet is designed to adjust the subsidiary's assets and liabilities from _____ value to fair value.

book

The second column of figures on the consolidated worksheet includes the subsidiary's assets and liabilities at their _____ values.

book

When a company acquires another company in a fundamentally different industry, this strategy is known as

diversification

When a company acquires a majority, but less than 100% of the voting stock of another company,

each company maintains its separate legal existence.

The acquisition-date fair value allocation schedule helps to prepare the worksheet entries to adjust the subsidiary's assets from book value to _____ value.

fair

The measurement attribute used by an acquirer to recognize an acquired firm's assets and liabilities is _____ _____.

fair value

Even though measurement of an intangible asset (e.g., unpatented technology or customer relationships) may lack precision, recognition of the identified intangible may result in greater

faithful representation

In its acquisition of Whole Foods Market, Amazon cited "expected improvements in technology performance and functionality" as a source of _____ recognized in the combination.

goodwill

The large amount of _____ recognized in the Salesforce.com acquisition of MuleSoft suggests substantial synergies are expected from the combination.

goodwill

When the consideration transferred in a 100% acquisition exceeds the total net fair value of the identifiable net assets received, the excess is recognized as

goodwill as an unidentifiable asset.

Consolidation entry S is a worksheet entry that

has no effect on the individual financial records of neither the parent nor the subsidiary.

Among the items recognized by Tesla from the Grohmann acquisition included _____ assets such as developed technology, software, customer relations, and the Grohmann trade name.

intangible

Trademarks and trade names are examples of _____-related intangible assets.

marketing

When a company acquires all of the assets and liabilities of another firm and the acquired firm is dissolved as separate entity, this combination is referred to as a statutory _____.

merger

For a 100% business acquisition where dissolution of the acquired firm does not occur, the parent company records on its books

the fair value of the acquired firm in an investment account.

The task of managing a diverse group of companies in distinct industries may fail if

the integration of the acquired firms into the controlling firm is not managed carefully.

The goal of the FASB/IASB joint project on accounting for business combinations was to

to develop a standard that includes a common set of principles to produce decision-useful information and minimizing exceptions to those principles.

When a company establishes contractual control (absent voting stock control) over another company, control is considered to be established through ownership of _____ interests.

variable

Select all that apply The FASB and IASB both have published standards of accounting for business combinations. Which of the following describes the relation between the two sets of business combination accounting standards? - Differences exist across the two standards in accounting for a noncontrolling interest. - The convergence of the two standards was designed to enhance cross-border comparability of consolidated financial statements. - The two sets of standard are identical in most respects. - The two sets of standards are divergent and distinct in most respects.

- Differences exist across the two standards in accounting for a noncontrolling interest. - The convergence of the two standards was designed to enhance cross-border comparability of consolidated financial statements. - The two sets of standard are identical in most respects.

Select all that apply Which of the following represent reasons why Tesla acquired Grohmann Engineering? - Expected reductions in capital expenditures required for vehicle produced. - An expectation that the acquisition will increase the speed and quality of production. - Expected integration of Grohmann's technology into Tesla's automotive business. - Grohmann's finished vehicle manufacturing will add to Tesla's revenues.

- Expected reductions in capital expenditures required for vehicle produced. - An expectation that the acquisition will increase the speed and quality of production. - Expected integration of Grohmann's technology into Tesla's automotive business.

Select all that apply Which of the following intangibles are often recognized in a business combination? - Franchise agreements - Patents - Customer relationships - Assembled workforce

- Franchise agreements - Patents - Customer relationships

Select all that apply The acquisition method requires the recognition and measurement of which of the following? - Goodwill or a gain from bargain purchase. - Any existing noncontrolling interest. - The subsidiary's stockholders' equity accounts. - The acquiree's identified assets and liabilities assumed by the acquirer.

- Goodwill or a gain from bargain purchase. - Any existing noncontrolling interest. - The acquiree's identified assets and liabilities assumed by the acquirer.

Select all that apply A single entity can become more profitable than the separate parent and subsidiary had been in the past through which of the following? - Larger firms can become more efficient at delivering goods and services. - Diversification of business risk. - The ability to attract financing at lower interest rates from greater negotiating power. - Larger size inevitably leads to larger returns to stockholders.

- Larger firms can become more efficient at delivering goods and services. - Diversification of business risk. - The ability to attract financing at lower interest rates from greater negotiating power.

Select all that apply Which of the following represent reasons that Salesforce.com acquired MuleSoft? - Tangible assets represent the majority of the value obtained by Salesforce.com in the MuleSoft acquisition. - MuleSoft had capabilities to help clients incorporate legacy information technology with Salesforce. - MuleSoft's cloud platform will help to integrate and connect clients applications, data, and devices.

- MuleSoft had capabilities to help clients incorporate legacy information technology with Salesforce. - MuleSoft's cloud platform will help to integrate and connect clients applications, data, and devices.

Select all that apply Which of the following are typical costs that accompany a business combination? - Professional service fees for attorneys and accountants. - Secretarial and management time allocated to acquisition activity. - Write downs to fair value of acquired assets. - Costs incurred to register and issue securities.

- Professional service fees for attorneys and accountants. - Secretarial and management time allocated to acquisition activity. - Costs incurred to register and issue securities.

Select all that apply Which of the following may be included in the calculation of the consideration transferred for a newly acquired firm? - Sum of the acquisition-date fair values of the assets transferred by the acquirer. - The stockholder equity account balances of the acquired firm. - The equity interests issued by the acquirer in the combination. - The liabilities incurred by the acquirer to former owners of the acquiree.

- Sum of the acquisition-date fair values of the assets transferred by the acquirer. - The equity interests issued by the acquirer in the combination. - The liabilities incurred by the acquirer to former owners of the acquiree.

Select all that apply Which of the following describes a fair value exchange price in an orderly transaction between market participants? - The price that would be paid for transferring a liability. - The price that would be received from selling an asset. - An offering price for selling an asset.

- The price that would be paid for transferring a liability. - The price that would be received from selling an asset.

Select all that apply Before preparation of a consolidated worksheet, an acquisition-date fair value allocation schedule is typically prepared. What is the purpose of the acquisition-date fair value allocation schedule? - The schedule allocates the consideration transferred among the individual assets acquired and liabilities assumed in the business combination. - The schedule computes the allocated value assigned to goodwill or a bargain purchase gain. - The schedule provides supporting calculations that identify fair value adjustments required in consolidation. - The schedule allocates the book value of the newly acquired subsidiary to the acquired assets and liabilities assumed

- The schedule allocates the consideration transferred among the individual assets acquired and liabilities assumed in the business combination. - The schedule computes the allocated value assigned to goodwill or a bargain purchase gain. - The schedule provides supporting calculations that identify fair value adjustments required in consolidation.

Select all that apply When may majority stock ownership fail to provide control over a business entity? - When noncontrolling participation rights are powerful enough to prevent the majority owners from exercising control. - When the noncontrolling voting stock owners elect members to the acquiree's board of directors. - When the acquiring company has only an indirect ability to determine the direction of management and policies through its majority voting privileges.

- When noncontrolling participation rights are powerful enough to prevent the majority owners from exercising control. - When the acquiring company has only an indirect ability to determine the direction of management and policies through its majority voting privileges.

Select all that apply When may majority stock ownership fail to provide control over a business entity? - When the noncontrolling voting stock owners elect members to the acquiree's board of directors. - When noncontrolling participation rights are powerful enough to prevent the majority owners from exercising control. - When the acquiring company has only an indirect ability to determine the direction of management and policies through its majority voting privileges.

- When noncontrolling participation rights are powerful enough to prevent the majority owners from exercising control. - When the acquiring company has only an indirect ability to determine the direction of management and policies through its majority voting privileges.

Select all that apply Why are consolidated financial statements prepared following a business combination? - When one business entity controls the others in a business combination, a single reporting entity exists. - There is a presumption that consolidated statements are more meaningful than separate company financial statements. - In any business combination, one or more companies cease to exist as separately controlled entities. - It is presumed that consolidated statements are necessary for a fair presentation.

- When one business entity controls the others in a business combination, a single reporting entity exists. - There is a presumption that consolidated statements are more meaningful than separate company financial statements. - It is presumed that consolidated statements are necessary for a fair presentation.

Select all that apply When a business combination is accompanied by contingent consideration to be paid by the parent upon completion of specified performance metrics, the journal entry to record the combination includes - a liability for the fair value of the contingent consideration. - a liability for the maximum amount payable under the contingency agreement. - the fair value of the contingent consideration in the investment account as part of the overall consideration transferred.

- a liability for the fair value of the contingent consideration. - the fair value of the contingent consideration in the investment account as part of the overall consideration transferred.

Select all that apply Intangible assets - are required to meet specific criteria to qualify for recognition in a business combination. - do not arise from contractual or other legal rights. - lack physical substance. - are common in business combinations.

- are required to meet specific criteria to qualify for recognition in a business combination. - lack physical substance. - are common in business combinations.

Select all that apply Preexisting goodwill on a newly acquired subsidiary's books is - written off to expense as of the date of acquisition. - simply added to the newly acquired goodwill and reported in the consolidated balance sheet. - essentially ignored in the allocation of the consideration transferred to the subsidiary's assets and liabilities. - not considered an identifiable asset by the parent.

- essentially ignored in the allocation of the consideration transferred to the subsidiary's assets and liabilities. - not considered an identifiable asset by the parent.

Select all that apply Goodwill recognized in a business combination - may capture value derived from other intangible assets not otherwise eligible for recognition. - may embody synergies the acquirer expects to achieve from the combination. - results when the fair value of the net identified assets of the acquired firm exceeds the consideration transferred in a 100% acquisition. - is an asset that represents future economic benefits

- may capture value derived from other intangible assets not otherwise eligible for recognition. - may embody synergies the acquirer expects to achieve from the combination. - is an asset that represents future economic benefits

Select all that apply In-process research and development acquired in a business combination is - tested periodically for impairment. - is reported as an expense in the consolidated income statement in the period of the related acquisition. - recognized at its acquisition-date fair value. - recognized as an indefinite life intangible asset.

- tested periodically for impairment. - recognized at its acquisition-date fair value. - recognized as an indefinite life intangible asset.

Select all that apply To complete a consolidation acquisition-date worksheet, - the "investment in subsidiary" account balance is eliminated entirely in consolidation. - the retained earnings account balances of the parent and subsidiary are combined for the consolidated balance sheet. - all account balances, after adjusting for consolidation entries, are extended across to the Consolidated Total column.

- the "investment in subsidiary" account balance is eliminated entirely in consolidation. - all account balances, after adjusting for consolidation entries, are extended across to the Consolidated Total column.

Select all that apply In a business combination when each combining firm remains a legally incorporated separate entity - the parent records on its accounting records each of the acquired assets and liabilities assumed in the business combination - the parent records an investment account at the subsidiary's net book value of the assets acquired and liabilities assumed. - the acquiring firm does not physically record the acquired firm's separate assets and liabilities. - the parent company employs consolidated worksheet entries to help prepare a set of consolidated financial statements.

- the acquiring firm does not physically record the acquired firm's separate assets and liabilities. - the parent company employs consolidated worksheet entries to help prepare a set of consolidated financial statements.

Select all that apply In a business combination when each combining firm maintains its separate incorporation - the acquiring firm utilizes an investment account to record the acquisition. - each company maintains independent record keeping. - consolidation worksheets are employed to generate financial reports for the combined economic entity. - the acquiring firm records on its books the individual assets acquired and liabilities assumed at their respective fair values.

- the acquiring firm utilizes an investment account to record the acquisition. - each company maintains independent record keeping. - consolidation worksheets are employed to generate financial reports for the combined economic entity.

Select all that apply In financial reporting for a bargain purchase business combination - the collective fair value of the identifiable net assets becomes the acquired firm's valuation basis. - a gain is reported on the acquiring firm's income statement. - the consideration transferred by the acquirer becomes the valuation basis of the acquired firm. - goodwill is reported as a result of the business combination.

- the collective fair value of the identifiable net assets becomes the acquired firm's valuation basis. - a gain is reported on the acquiring firm's income statement.

Select all that apply When an acquired firm's legal status is dissolved in a business combination, the acquiring firm's entry to record the combination includes - the fair value of the consideration transferred. - goodwill in all circumstances when control is obtained. - the individual fair values of the assets acquired and liabilities assumed.

- the fair value of the consideration transferred. - the individual fair values of the assets acquired and liabilities assumed.

Select all that apply In a business combination, when the collective fair values of the net identified assets acquired and liabilities assumed exceeds the consideration transferred, - the fair value of the net identifiable assets becomes the valuation basis for the acquired firm. - goodwill is recorded for the excess fair value acquired. - the acquirer recognizes a gain on bargain purchase.

- the fair value of the net identifiable assets becomes the valuation basis for the acquired firm. - the acquirer recognizes a gain on bargain purchase.

Select all that apply When the collective fair value of the net identified assets acquired and liabilities assumed exceeds the consideration transferred, - goodwill is recorded for the excess fair value acquired. - the fair value of the net identifiable assets becomes the valuation basis for the acquired firm. - the acquirer recognizes a gain on bargain purchase.

- the fair value of the net identifiable assets becomes the valuation basis for the acquired firm. - the acquirer recognizes a gain on bargain purchase.

Select all that apply When the fair value of a 100% acquired subsidiary's net identifiable assets exceeds the consideration transferred, - the excess is reported in consolidated balance sheet as goodwill. - the parent records a bargain purchase gain on its books. - a bargain purchase gain is reported in the consolidated income statement in the period of the acquisition. - the identifiable assets of the acquired subsidiary are reported in the acquisition-date consolidated balance sheet at fair value.

- the parent records a bargain purchase gain on its books. - a bargain purchase gain is reported in the consolidated income statement in the period of the acquisition. - the identifiable assets of the acquired subsidiary are reported in the acquisition-date consolidated balance sheet at fair value.

Select all that apply The recording of goodwill in a business combination may recognize that - the quality of the acquired firm's personnel may provide additional profitability. - the acquiring firm has unrecorded identifiable intangible assets. - the assets of the combining firms may act in concert to produce an expectation of enhanced profitability. - the acquiring firm has transferred consideration in excess of the acquired net identifiable assets.

- the quality of the acquired firm's personnel may provide additional profitability. - the assets of the combining firms may act in concert to produce an expectation of enhanced profitability. - the acquiring firm has transferred consideration in excess of the acquired net identifiable assets.

Market estimates of fair value are most often appropriate for which categories of assets acquired in a business combination?

Actively-traded securities

Which of the following best describes control through a majority voting stock acquisition? - Although one company controls another, no dissolution occurs and each company remains a separately incorporated entity. - The acquiring company must gain 100 percent all voting shares before legally dissolving the subsidiary. - Two or more companies transfer their assets or capital stock to a newly formed entity. - One company acquires the net assets of another company and the acquired company then is dissolved as a separate legal entity.

Although one company controls another, no dissolution occurs and each company remains a separately incorporated entity.

Why do some criticize the recognition of bargain purchase gains in business combinations?

An unrealized gain is recognized despite the lack of any selling activity by the acquirer.

How does the acquisition method treat contingent consideration when present in a business combination

As a negotiated component of the fair value of the consideration transferred.

How does one firm usually exercise control over another firm?

By ownership of a majority voting stock interest.

Which of the following best describes control through ownership rights to variable interests in another firm? - Control is exercised through contractual arrangements that entitle a primary beneficiary of another firm to residual profit rights. - Two or more companies transfer their assets or capital stock to a newly formed entity. - The acquiring company must gain 100% of all voting shares before dissolving the subsidiary and becoming the primary beneficiary. - One company acquires the net assets of another firm and the variable interest entity is dissolved.

Control is exercised through contractual arrangements that entitle a primary beneficiary of another firm to residual profit rights.

What is the primary vehicle that business firms employ to exercise control over other business entities?

Control through majority voting stock ownership.

What is the measurement attribute employed in determining the consideration transferred in a business combination?

Fair value.

What is the primary measurement attribute employed in accounting for an acquired company in a newly formed business combination?

Fair value.

True or false: In a business combination, the acquiring firm increases its retained earning for the amount of the acquisition-date subsidiary retained earnings.

False

True or false: Ownership of a majority voting interest is the only way to ensure a controlling financial interest

False

True or false: Pre-existing goodwill, when present on an acquired firm's separate balance sheet, is considered an identifiable intangible asset

False

True or false: When a parent acquires a subsidiary and records a bargain purchase gain, the gain is reported as a deferred gain on the consolidated balance sheet.

False

True or false: When an acquired firm is legally dissolved upon acquisition, the acquirer will record on its books all of the former firm's assets and liabilities at their former book values.

False

Which of the following is typically employed to consolidate the financial reports of separately incorporated firms that are part of a business combination? - The surviving firm records each of the accounts and respective amounts of the firms in the business combination on its financial records. - Financial statement information of each firm in the business combination is used to prepare consolidated financial statements. - The acquired firm records the accounts of the surviving firm in its financial records.

Financial statement information of each firm in the business combination is used to prepare consolidated financial statements.

A business combination occurs and the acquired firm is legally dissolved. If the consideration transferred by the acquiring firm equals the collective fair value of the acquired firm's net identifiable asset, then

Neither goodwill nor a bargain purchase gain is recorded.

Which of the following best describes a statutory merger? - Two or more companies transfer their capital stock to a newly formed entity and the predecessor companies formally undergo dissolution. - Two or more companies transfer their assets and liabilities to a newly formed entity. - One company acquires the net assets of another company and the acquired company then is dissolved as a separate legal entity. - One company obtains control over another by acquiring a majority interest in another company's voting stock.

One company acquires the net assets of another company and the acquired company then is dissolved as a separate legal entity.

Which of the following is an attribute of a statutory merger? - One company directly acquires another company's assets and assumes its liabilities. - Two or more existing companies are united under the ownership of a newly created company. - Both of the companies involved retain their separate legal existences. - The acquiring company must gain 100% of all voting shares of the acquired company.

One company directly acquires another company's assets and assumes its liabilities.

When an acquired firm continues its separate legal corporate existence, which of the following best describes the procedures to prepare consolidated financial statements? - Only independent financial statements of the acquired firm and the parent are prepared. - Only the financial statement information of the acquired firm and the parent are used to prepare consolidated financial statements. - The acquired firm first records the acquirer's assets and liabilities on its financial records, and then prepares consolidated statements. - The acquired firm's accounts and balances are physically transferred to the accounts on the parent's financial records.

Only the financial statement information of the acquired firm and the parent are used to prepare consolidated financial statements.

For what types of assets is the cost approach often used to estimate fair values?

Property, plant, and equipment

What is the accounting treatment of the acquired subsidiary's equity accounts in a business combination?

Subsidiary equity accounts are excluded from the accounting for the business combination.

Why is the in-process research and development (IPR&D) of an acquired subsidiary recognized as an asset?

The IPR&D has an acquisition-date fair value.

When a business combination results in a bargain purchase gain, which of the following best describes the valuation basis of the acquired firm? - The collective fair value of the net identifiable assets acquired. - The collective fair value of the net identifiable assets acquired less the bargain purchase gain. - The fair value of the consideration transferred by the acquiring firm. - The collective book value of the net identifiable assets acquired.

The collective fair value of the net identifiable assets acquired.

Select all that apply Which of the following occurs in a business combination? - A single financial reporting entity is created. - The company acquired in a business combination ceases to exist. - One company gains control over the assets and operations of another company. - A single set of financial statements subsequently is prepared for all the firms under common control.

- A single financial reporting entity is created. - One company gains control over the assets and operations of another company. - A single set of financial statements subsequently is prepared for all the firms under common control.

Select all that apply Which of the subsidiary's account balances are frequently eliminated through consolidation entry S? - Long-term debt - Additional paid-in capital - Common stock - Retained earnings

- Additional paid-in capital - Common stock - Retained earnings

Select all that apply Which of the following were cited as motivations for Amazon to acquire Whole Foods Market? - Amazon gained a competitive edge against other on-line grocery distributors. - Whole Foods was a relatively small acquisition for Amazon relative to its other business combinations. - Amazon effectively expanded its distribution network to include hundreds of Whole Foods stores.

- Amazon gained a competitive edge against other on-line grocery distributors. - Amazon effectively expanded its distribution network to include hundreds of Whole Foods stores.

Select all that apply Which of the following are included in the first two columns of the consolidated worksheet as of the acquisition date? - Any contingent performance liability that may have accompanied the combination. - An investment account in the parent's financial statement column. - Pre-combination revenues and expenses of both the parent and subsidiary companies.

- Any contingent performance liability that may have accompanied the combination. - An investment account in the parent's financial statement column.

Select all that apply Which of the following is a characteristic of the accounting procedure for a statutory merger or a statutory consolidation? - Because the acquired firm's accounts are combined on the surviving company's records, no further consolidation procedures are needed. - Once the dissolved companies' account balances are transferred to the surviving company's records, the records of the dissolved companies are closed. - The parent company records an investment account to track the subsidiary's financial activities. - On the combination date, the surviving company records on its books the assets and liabilities from each of the dissolving companies.

- Because the acquired firm's accounts are combined on the surviving company's records, no further consolidation procedures are needed. - Once the dissolved companies' account balances are transferred to the surviving company's records, the records of the dissolved companies are closed. - On the combination date, the surviving company records on its books the assets and liabilities from each of the dissolving companies.

Select all that apply Which of the following are considered potential advantages to growth through a business combination? - Cost savings through elimination of duplicate facilities and staff. - Quick entry for new and existing products into domestic and foreign markets. - Larger firms with multiple lines of business are less subject to management difficulties. - Economies of scale allowing greater efficiency and negotiating power.

- Cost savings through elimination of duplicate facilities and staff. - Quick entry for new and existing products into domestic and foreign markets. - Economies of scale allowing greater efficiency and negotiating power.

Select all that apply Select from below the attributes of a business combination accomplished through acquisition of variable interests in another entity. - Current GAAP requires the consolidation of financial statement for a primary beneficiary and its variable interest entities. - The acquiring company directly buys the variable interest entity's assets and assumes its liabilities. - The variable interest entity remains in existence as a separate legal entity--often a trust or partnership. - Majority voting stock ownership is not a necessary condition for control over a variable interest entity.

- Current GAAP requires the consolidation of financial statement for a primary beneficiary and its variable interest entities. - The variable interest entity remains in existence as a separate legal entity--often a trust or partnership. - Majority voting stock ownership is not a necessary condition for control over a variable interest entity.

What are the financial reporting requirements when one business organization possesses control over another business organization?

A single set of consolidated financial statements is prepared for the separate business entities tied together through common control.

What is a business combination?

A set of separate business organizations under the control of a single company.