Portray the related companies as if they were actually a single company.
Is a corporation that is controlled by another corporation
The controlling company who usually owns through majority ownership of its common stock
Special-Purpose Entity (SPE)
A financing vehicle that is not a substantive operating entity, usually one created for a single specified purpose.
Previously widely used method of accounting for business combinations, sometimes created earnings and, in the view of many, provided misleading financial reporting subsequent to a combination.
Occurs when the ownership of a newly created or existing subsidiary is distributed to the parent's stockholders without the stockholders surrendering any of their stock in the parent company.
Occurs when the subsidiary's shares are exchanged for shares of the parent, thereby leading to a reduction in the outstanding shares of the parent company
Occurs when "...an acquirer obtains control of one or more businesses."
Concept of Control
Relates to the ability to direct policies and management
Business combination in which the acquired company's assets and liabilities are combined with those of the acquiring company.
A business combination in which the acquired company remains as a seperate legal entity with a majority of its common stock owned by the purchasing company leads to a parent-subsidiary relationship.
The purchase of a less-than-majority interest in another corporation does not usually result in a business combination or controlling situation.
Other Beneficial Interest
One company may have a beneficial interest in another entity even without a direct ownership interest.
A company that has the ability to make decisions significantly affecting the results of another entity's activities or is expected to receive a majority of the other entity's profits and losses
Is a type of business combination in which only one of the combining companies survives and the other loses its seperate identitiy.
When the acquired company's assets and liabilities are transferred to the acquiring company, and the acquired company is disolved
Is a business combination in which both combining companies are dissolved and the assets and liabilities of both companies are transferred to a newly created corporation.
Occurs when one company acquires the voting shares of another company and the two companies continue to operate as seperat, but related, legal entities
The relationship that is created in a stock acquisition
In an unfriendly combination, where the managements of the companies involved are unable to agree on the terms of a combination, and the management of one of the companies makes a tender offer directly to the shareholders of the other company.
Invities the shareholders of the other company to exchange their shares for securities or assets of the acquiring company.
The total of the shares of an acquired company not held by the controlling shareholder
The acquirer recongnizes all assets acquired and liabilities assumed in a business combination and measures them at their acquisition-date fair values.
Is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized
The total difference at the acquisition date between the fair value of the consideration exchanged and the book value of the net identifiable assets acquired
Occasionally, the fair value of the consideration given in a business combination, along with the fair value of any equity interest in the acquiree already held and the fair value of any noncontrolling interest in the acquiree, may be less than the fair value of the acquiree's net identifiable assets.
Is used for reporting investments in equity securities when both consolidation and equity-method reporting are inappropiate.
Is used for external reporting when the investor exercises significant influence over the operating and financial policies of the investee and consolidation is not appropiate.
Involves combining for financial reporting the individual assets, liabilities, revenues, and expenses of two or more related companies as if they were part of a single company.
A subsidiary that is not consolidated with the parent
All dividends declared by the investee in excess of its earnings since acquisition by the investor
Corporate Joint Venture
Is a coporation owned and operated by a small group of businesses, none of which owns a majority of the joint venture's common stock.
Provides a mechanism for efficiently combining the accounts of the separate companies involved in the consolidation and for adjusting the combined balances to the amounts that would be reported if all consolidating companies were actually a single company.
Used in the consolidation worksheet to adjust the totals of the individual account balances of the seperate consolidating companies to reflect the amounts that would appear if all the legally separate companies were actually a single company.
Consolidated Net Income
Equal to the parent's income from its own operations, excluding any invesment income from consolidated subsidiaries, plus the net income from each of the consolidated subsidiaries, adjusted for any differential write-off.
Consolidated Retained Earnings
As it appears in the consolidated balance sheet, is that portion of the consolidated enterprise's undistributed earnings accruing to the parent company shareholders.
Typically occurs when one company owns a majority of another company's common stock.
Pyramiding occurs when a company's common stock is owned by one or more other companies that are all under common control.
Variable Interest Entity (VIE)
Is a legal structure used for business purposes, usually a corporation, trust, or partnership, that either (1) does not have equity investors that have voting rights and share in all of the entity's profits and losses or (2) has equity investors that do not provide sufficient financial resources to support the entity's activities.
Accounting views the firm as an extension of the owners. The firm's assets, liabilities, revenues, and expenses are viewed as those of the owners themselves.
Pro Rata Consolidation
In which the parent company consolidates only its proportionate share of a less-than-wholly-owned subsidiary's assets, liabilities, revenues, and expenses.
Parent Company Theory
Is perhaps better suited to the modern corporation and the preparation of consolidated financial statements than is the proprietary approach.
Focuses on the firm as a separate economic entity rather than on the ownership rights or the shareholders.
Reasons For Corporate Expansion
Growth, economies of scale, stability in earnings, expanded product line, ensure supply, prestige, and higher salaries for managment
Forms of Corporate Expansion
Statutory merger, statutory consolidation, and parent subsidiary-stock acquisition.
Is the diminishing in quality, strength, amount, or value of an asset.
Company that gains possession of another company
Company that is being purchased in a merger or acquisition
A company under consideration for a takeover by another company or individual
The method by which a company or individual tries to acquire a target company.
A takeover that is agreed to by the management of the target company.
A formal offer to the stockholders of a target company to purchase shares at a specified price for a specific period of time.
Hostile Tender Offer
Management of the target company recommends to its shareholders that the tender offer be rejected
Provisions in a corporation's bylaws that will discourage unfriendly suitors.
The selling off of attractive assets so that the target company is no longer attractive to the aggressor or the issuance of a huge amount of convertible preferred stock that can dilute the percentage of common stock to be acquired by the aggressor.
A company friendly to the target company to acquire it in place of a hostile acquirer.
A strategy in which the target company attempts to acquire the aggressor company.
A large award to members of top management if the member's position with the company is terminated as the result of a hostile takeover.
The sale of a hostile acquirer's stock back to the target company at a price higher than the market value of the shares.
Scorched Earth Policy
The target company liquidates a significant part of its assets to make itself unattractive to a suitor.
A takeover in which the acquiring firm normally acquires the target by large amounts of debt and small amounts of equity.
Unsecured bonds, often used in a leveraged buyout, of relative poor quality that pay a very high interest rate.
Cash Distribution Plan
Gives the partners an idea of the installment cash payments each will recieve as cash becomes available to the partnership.
Dissociation (Of A Partner)
Is the legal description of the withdrawl of a partner
Dissolution (Of A Partnership)
Is the dissolving of a partnership liquidation
Typically requries several months to complete and includes periodic, or installment, payments to the partners during the liquidation period.
Loss Absorption Power (LAP)
The maximum loss that the partnership can realize before that partner's capital account balance is extinguished.
Of a partnership is one in which all assets are converted into cash within a very short time, creditors are paid, and single, lump-sum payment is made to the partners for their capital interests.
Schedule Of Safe Payments To Partners
The schedule includes all the information necessary for partners to know how much cash they will receive at each cash distribution date.
Statement Of Partnership Realization & Liquidation
It presents, in worksheet form, the effects of the liquidation on the balance sheet accounts of the partnership. The statement shows the conversion of assets into cash, the allocation of any gains or losses to the partners, and the distribution of cash to creditors and partners.
As a portion of profits allocated to a partner based on a predetermined performance formula.
This method records an increase in the partnership's total capital only for the capital amount invested by the new partner, in accordance with GAAP.
Is the estimated amount to purchase the dissociated partner's interest.
Means that a partnership can sue or be sued and that partnership property belongs to the partnership and not to any individual partner.
Interest On Capital Balances
Simply means that the partners divide up some of all of the profits among themselves based on the relative balances they have maintained in their capital accounts.
Examples are capital, drawing, and loan accounts.
Means that the partner can no longer act on behalf of the partnership.
Are usually the result of negotiations between the partners. Ratios for profit distributions may be based on the percentage of total partnership capital, time, and effort invested in the partnership, or a variety of other factors.
Profit Distribution Plans
Plans on how to allocate profits for a partnership, include preselected ratio, interest on capital balances, salaries to partners, and bonuses to partners.
As a fixed amount of company profits allocated to a given partner
Statement Of Partner's Capital
Is usually prepared to present the changes in the partners capital accounts for the period.
Statement Of Partnership Authority
Describes the partnership and identifies the specific authority of partners to transact specific types of business on behalf of the partnership.
Is the partners share of the profits and losses of the partnership and the right to receive distributions, including any liquidating distribution.
Uniform Partnership Act Of 1997
This act reflects today's more complex partnership events and transactions, and stresses the fiduciary responsibilities of the partners to each other.
The difference between the acquisition price and the book value of the investor's proportionate share of the investee's net assets.
Revaluing the assets and liabilities of the subsidiary directly on the subsidiary's books.