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Related Flashcards
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Cards In This Set
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What can be the two different ways Contingent Considerations may be based on?
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Earnings or Security Price
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What are the 3 main components of Mergers?
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-There is only one main journal entry which deals with the subs assets/liabilities (recorded at FMV). The plug for the entry is either DR to goodwill or CR to gain on business combinations.
- Understand the two types of contingencies. - Goodwill Impairment Test |
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Contingent Consideration Based on Earnings DOA Entries
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(1) Begin with original merger acquisition entry
(2)(Dr) Gain on Bus Combo (From previous)(Dr) Goodwill (Plug)(Cr) Liability for Contingent Consideration (given) |
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Contingent Consideration Based on Earnings Entries if met and if not met (2)
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If Met: (Dr) Liability for Contingent Consideration (given) (Cr) Cash
If Not Met(Dr) Liability for Contingent Consideration (given) (Cr) Gain on Change in Accounting Estimate |
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Contingent Consideration based on Security Price (2 entries)
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Entry on DOA:(Dr) Various Net Assets (FMV on DOA)(Cr) Common Stock (#Shares x Par)(Cr) APIC (Plug)
Entry 1Yr Later, After Price Changes:Calculation: (Key: FMV on DOA is number A and FMV on dropped market price one year later is number B) -->[ (A-B) x #shares issued ] / B (Dr) APIC (Caluculation above)(Cr) Common Stock |
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For Goodwill to be impaired, what must be less than what? (Step 1)
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(AKA PV of future CF)FMV of reporting unit as a whole < BV of reporting unit, including Goodwill
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Once Step 1 determines that Goodwill is impaired, what is Step 2 in the Test for the impairment of Goodwill?
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Subtract the FMV of Identifiable net assets from the FMV of the reporting unit as a whole, to get the NEEDED (ending balance) of goodwill.
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When goodwill is impaired, and you figure out the ending balance of goodwill, you must calculate the amount of goodwill impaired. What is the entry for this impairment?
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(Dr) Loss on Goodwill Impairment(Cr) Goodwill
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A 60% owned subsidiary declares and pays a cash dividend. What effect
does the dividend have on the retained earnings and the minority interest
balances in the parent’s consolidated balance sheet?
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No effect on retained earnings and a decrease in minority interest
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Non-controlling minority interest, as it appears in a consolidated
balance sheet, refers to what?
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Equity in the subsidiary’s net assets held by stockholders other than
the parent.
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Consolidated financial statements are typically prepared when one entity
has a controlling financial interest in another entity unless:
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Control does
not rest with the majority owners OR control is temporary.
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The theoretically preferred (and now required) method of presenting a
non-controlling (minority) interest in a consolidated balance sheet is:
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As a separate item within the stockholders’ equity section.
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Why is it important to note the difference between book value and implied value?
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When recording assets, the parent records the sub’s assets at FMV.
However, the sub’s assets are recorded at BV on their books
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How do you calculate Implied Value?
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Acquisition Cost/Acquisition %
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How do you find a firm's Book Value?
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The sum of
all equity accounts (common stock, additional contributed capital, retained
earnings, etc.); which also equals the book value of the acquired firm’s assets
minus their liabilities
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