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Wiley CPAexcel Exam Review 2014 Focus Notes: Financial Accounting and Reporting by Ray Whittington

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Focus on: Consolidated Statements—Module 18

BUSINESS COMBINATIONS/ACQUISITIONS

Consolidation is required whenever the acquirer has control over another entity.

  • Acquirer is the entity that obtains control of one or more businesses in the business combination
  • Ownership of majority of voting stock generally indicates control
  • Consolidation is required even if control situation is temporary
  • Consolidation is not appropriate when a majority shareholder doesn’t have effective control:
    • Company is in bankruptcy or reorganization
    • Foreign exchange controls limit power to keep control of subsidiary assets
  • All consolidations are accounted for as acquisitions
    • The acquirer shall recognize goodwill, the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and any residual goodwill
    • Recognize separately
      • Acquisition-related costs
      • Assets acquired and liabilities assumed arising from contractual contingencies
      • Bargain purchase (fair value of assets acquired > amount paid) recognized as gain
      • Fair values of research and development assets
      • Changes in the value of acquirer deferred tax benefits

Accounting for an Acquisition

Combination—Records Combined

Assets (at fair market values) xxx
Separately identifiable assets xxx
Goodwill (plug) xxx
Liabilities (at fair market values)
xxx
Stockholders’ equity (two steps)*
xxx
OR
Cash (amount paid)
xxx

* Credit common stock for par value of shares issued and credit additional paid-in ...

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