CSUF Significance of Culture on Mergers and Acquisitions Summary Please find a current article about business combination and write a one-page summary of t

CSUF Significance of Culture on Mergers and Acquisitions Summary Please find a current article about business combination and write a one-page summary of the article (single space). Also, need to explain the relevance of the article to the course material (attached Powerpoint) Business
Combinations:
New Rules for a
Long-Standing
Business
Practice
Chapter 1
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1
Acquisition of Control
• Acquire (
)
– Acquire directly from target company
– Assume liabilities
– Payment in cash, debt, or equity
• Acquire (
)
– Typically more than 50% of target’s voting common
stock
– Creates parent/subsidiary relationship
– Separate legal entities remain
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2
Acquisition of Control
• Accounting ramifications – asset acquisition
– Acquiring company records assets and liabilities
– Subsequent accounting procedures are same as for
any single accounting entity
• Accounting ramifications – stock acquisition
– Parent records an (
)
– Parent and sub remain separate legal entities with
their own separate sets of accounts and separate
financial statements
– Consolidated financial statements reflect presence of
one economic entity
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3
Applying the Acquisition Method
•
•
Measure the (
) value of the acquiree
Record the acquiree’s assets and liabilities that are
assumed
–
–
–
–
Net assets = excess of assets over liabilities
Identifiable assets never include (
Only “new” goodwill is recorded in an acquisition
Fair value of net assets NE fair value of the acquiree as an
entire entity
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)
4
Valuation of Identifiable Assets and Liabilities
• Current assets recorded at (
) value
• Existing liabilities recorded at (
) value
• Property, plant, and equipment recorded at
(
) value
• Assets scheduled for sale are recorded as
current assets at net realizable value
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5
Valuation of Identifiable Assets and Liabilities
• Acquiree was the lessee of assets in use
– Leases retain their definition if terms are not modified
– Operating leases
• Recognize an (
• Record an (
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) if terms are favorable
) if the terms are unfavorable
6
Valuation of Identifiable Assets and Liabilities
Example:
Excess of current payment over
contractual amount
Remaining term of lease (months)
Annual discount rate
Asset (present value beginning mode)
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$300
60
8%
$14,894
7
Valuation of Identifiable Assets and Liabilities
• Acquiree acted as lessor
– Leases retain their definition if terms are not modified
– Operating lease
• Asset under lease is on books of acquiree
• Record at fair value
• Evaluate terms; record asset (liability) if favorable (unfavorable) to
the acquiree/lessor
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8
Applying the Acquisition Model
Cash
Marketable securities
Inventory
Land
Buildings (net)
Equipment (net)
Customer list
Current liabilities
8% 5-yr bonds
Premium on bond pay
Warranty liability
$1 par common stock
Addn’l pd-in capital
Retained earnings
Bal Sheet
FASB ASC 820-10-35
10/1/2011
10/1/2011
40,000
60,000
100,000
30,000
150,000
80,000
book value
L1 – market
L1 – market
L2 – adj mkt
L2 – adj mkt
L1 – market
L3 – other est
(25,000)
book value
(100,000)
face
L2 – adj mkt
L3 – other est
(10,000)
(140,000)
(185,000)
fair value of net identifiable assets
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40,000
66,000
110,000
72,000
288,000
145,000
125,000
(25,000)
(100,000)
(4,000)
(12,000)
705,000
9
Recording the Acquisition
• All accounts are recorded at fair value
• Price paid > fair value of net identifiable assets
– Recognize (
)
• Price paid < fair value of net identifiable assets – Recognize ( ) • All acquisitions costs are ( ) • When a firm issues stocks, the issuance costs are ( ) COPYRIGHT © 2012 South-Western/Cengage Learning 10 Recording the Acquisition: Goodwill Price paid (40,000 shares × $20 mkt value) Fair value of net assets acquired Goodwill COPYRIGHT © 2012 South-Western/Cengage Learning $ 800,000 (705,000) $ 95,000 11 Recording the Acquisition: Gain Price paid (25,000 shares × $20 mkt value) Fair value of net assets acquired Gain COPYRIGHT © 2012 South-Western/Cengage Learning $ 500,000 (705,000) $ 205,000 12 Accounting by the Acquiree • Record receipt of consideration • Remove assets and liabilities at their ( values • Recognize ( ) on sale of business • Typical final step ) – Distribute consideration received to shareholders – Cease operations COPYRIGHT © 2012 South-Western/Cengage Learning 13 Goodwill Accounting After the Acquisition Publically traded companies do not amortize goodwill; it is tested for impairment when appropriate COPYRIGHT © 2012 South-Western/Cengage Learning 14 Impairment: Example Recorded $100,000 goodwill in purchase three years ago. Now: Net assets at book value $650,000 Outside offer for purchasing the business unit $625,000 Fair value net identifiable assets excluding GW $580,000 Is the goodwill impaired? (1) (2) (3) (4) Implied fair value of goodwill: Book value of goodwill: Impaired amount: Journal entry COPYRIGHT © 2012 South-Western/Cengage Learning 15 Suggested Problems • Exercise: 1, 2, 3, 4, and 9 • Problem: 1, 2, and 5 COPYRIGHT © 2012 South-Western/Cengage Learning 16 Purchase answer to see full attachment