Question

Explain the term Acquisition and investments in intercorporate Entities.

Advanced accounting

Answer 1

Intercorporate Acquisitions and Investments in Other Entities

This chapter provides an overview of complex organizational arrangements (or structures).

•Complex organization structures often result from complex business strategies such as:

•Extending operations into foreign countries.

•Initiating new product lines.

•Separating activities that fall under regulatory controls.

•Reducing taxes by separating certain types of operations.

Intercorporate Acquisitions and Investments in Other Entities

•Several accounting transactions may be required to initiate a complex organization structure.

•There is a need to analyze multiple transactions for multiple companies simultaneously—not just one transaction for one company.

Intercorporate Acquisitions and Investments in Other Entities

   The accounting procedures in this chapter are driven by such questions as:

•Did the company acquire the common stock of another company or the assets of another company ?

•Was the company dissolved (i.e. liquidated) or did the company continue to exist?

•Was a new company formed?

•Was there a change in ownership control?

•Is the acquired company wholly-owned?

Forms of Business Combinations

•There are three primary forms of business combinations:

•Statutory Merger

•Statutory Consolidation

•Stock Acquisition

consolidated financial statements

Portrays related companies as if they were actually a single company.

subsidiary

A corporation that another corporation controls, usually through a majority ownership of its common stock.

The parent company

controls the subsidiary.

special purpose entity

A financing vehicle that is not a substantive operating entity, usually created for a single specified purpose.

A special purpose entity may be in the form of ...

a corporation, trust, or partnership.

business combination

Occurs when an acquirer obtains control of one or more businesses

merger

A business combo in which the acquired company's assets and liabilities are combined with those of the acquiring company.

controlling ownership

A business combo in which the acquired company remains a separate legal entity with a majority of its common stock owned by the purchasing company leads to a parent-subsidiary relationship.

noncontrolling ownership

The purchase of a less than majority interest in another corporation does not usually result in a business combination or controlling situation.

statutory merger

A type of business combo in which only one of the combining companies survives and the other loses its separate identity.

statutory consolidation

A business combo in which both combing companies are dissolved and the assets and liabilities of both companies are transferred ti a newly created corporation.

stock acquisition

Occurs when one company acquires the voting shares of another company and the two companies continue to operate as separate, but related, legal entities.

noncontrolling interest

The total of the share of an acquired company not held by the controlling shareholder.

acquisition method

The acquirer recognizes all assets acquired and liabilities assumed in a business combo and measures them at their acquisition date fair values.

goodwill

An asset representing the future economic benefits arising from other assets acquired in a business combo that are not individually identified and separately recognized.