Slides_Chapter 2

Slides_Chapter 2 - Chapter Two Consolidation of Financial...

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Unformatted text preview: Chapter Two Consolidation of Financial Information Business Combinations • Two Ways for a Business to Grow Internal Expansion (Organic Growth) External Expansion (Business Combinations) Business Combinations • Types of External Expansion Horizontal integration (Buy Competitors) Vertical integration (Buy suppliers or distributors) Diversification (Buy unrelated businesses) Business Combinations • Reasons for Business Combinations Vertical integration Cost savings Economies of scale Quick access to new markets More attractive financing opportunities Diversification of business risk Statutory Mergers (Through Asset Acquisition) Investor acquires assets (and often liabilities) of the Investee Investee dissolves and goes out of business Investee’s books are permanently closed and the Investor’s books are adjusted at the acquisition date for the newly acquired accounts Statutory Mergers (Through Capital Stock Acquisition) Investor acquires all stocks of the Investee, and then transfers assets and liabilities of the Investee to its own books. Investee dissolves as a separate company but often remains as a division of the Investor. One entity survives and moves forward Statutory Mergers • Before: Pete’s Casino | Sam’s Casino • After: Pete’s Casino • Sam is legally dissolved. Statutory Consolidation A newly created company receives all assets or stock of the...
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This note was uploaded on 11/05/2011 for the course ACCT 501 taught by Professor Ma during the Fall '11 term at South Carolina.

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Slides_Chapter 2 - Chapter Two Consolidation of Financial...

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