Beruflich Dokumente
Kultur Dokumente
Chapter 1
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Learning Objective 1
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Business Combinations
A business combination occurs when two or more separate businesses join into a single accounting entity.
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Other reasons
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
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Learning Objective 2
Learn about the alternative forms of business combinations, from both the legal and accounting perspectives.
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
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Acquisitions
Merger
Consolidation
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Merger
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
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Consolidation
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
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Single management
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Learning Objective 3
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Pooling Method
Pooling uses historical book values to record combinations rather than recognizing fair values of net assets at the transaction date. Most of the detailed issues related to poolings concern the original recording of the combination.
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Purchase Method
Purchase accounting requires the recording of assets acquired and liabilities assumed at their fair values at the date of combination.
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Learning Objective 4
Introduce concepts of accounting for business combinations emphasizing the purchase method.
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Goodwill
Goodwill is an intangible asset that arises when the purchase price to acquire a subsidiary company is greater than the sum of the market value of the subsidiarys assets minus liabilities.
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Learning Objective 5
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Such goodwill is an unidentifiable asset. Goodwill resulting from the combination is valued directly.
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
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Recognizable intangibles
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Security prices
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Investment cost
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>
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Goodwill
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
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Pitt Corporation acquires the net assets of Seed Company on December 27, 2003.
Pitt
Seed
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$1,000
Pitt pays $400,000 cash and issues 50,000 shares of Pitt Corporation $10 par common stock with a market value of $20 per share. 50,000 $10 = $500,000
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Accounts payable 60 Notes payable 135 Other liabilities 45 Investment in Seed Company 1,400 $1640 1,440 = 200
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An impairment occurs when the recorded value of goodwill is less than its fair value.
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
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End of Chapter 1
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