1 22 formsofbusinesscombinations statutorymerger

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: clude the effects of previous methods. 1-20 The Pooling of Interests Method No longer allowed! Idea: no change in ownership had actually occurred in the business combination: book values of the combining companies were carried forward to the combined company, no revaluations to fair value were made. Goodwill was never recognized; thus, future income statements did not have goodwill amortization expense Managers loved it! 1-21 The Purchase Method Purchase of a business ~ purchase of any asset. Acquired company → recorded based on the purchase price that the acquirer paid. Direct costs of the combination were included in the total purchase price. Difference between the total purchase price & the fair value of the net identifiable assets acquired: Goodwill. 1-22 Forms of Business Combinations: Statutory Merger The acquired company’s assets and liabilities are transferred to the acquiring company, and the acquired company is dissolved, or liquidated. The operations of the previously separate companies are carried on in a single legal entity. AA Company AA Company BB Company Only one of the combining companies survives & the other loses its separate entity 1-23 Forms of Business Combinations: Statutory Consolidation Both combining companies are dissolved and the assets and liabilities of both companies are transferred to a newly created corporation AA Company CC Company BB Company The operations of the previously separated companies are carried on in a single legal entity → neither of the combining companies remains in existence after a statutory consolidation 1-24 Forms of Business Combinations: Stock Acquisition One company acquires the voting shares of another company The two companies continue to operate as separate, but related, legal entities → Parent–subsidiary relationship Parent–subsidiary relationship For general­purpose financial reporting, a parent company and its subsidiaries present consolidated financial statements. Company AA AA Company BB Company BB Company Neither of the combining companies is l...
View Full Document

Ask a homework question - tutors are online