PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Question
Chapter 31, Problem 2PS
a)
Summary Introduction
To discuss: Whether the statement is true or false.
b)
Summary Introduction
To discuss: Whether the statement is true or false.
c)
Summary Introduction
To discuss: Whether the statement is true or false.
d)
Summary Introduction
To discuss: Whether the statement is true or false.
d)
Summary Introduction
To discuss: Whether the statement is true or false.
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Students have asked these similar questions
How does a merger allow a firm to circumvent tax laws?
a
By offering the firm a chance to use the losses in one company to offset profits and tax liabilities of another.
b
The merger would allow the company to grow their revenue stream into a lower percentage tax bracket.
c
Tax breaks are offered to newly merged firms
d
Application of the Clayton Act of 1914
e
Application of the Sherman Antitrust Act
A bargain purchase arises when the price paid to acquire a controlling interest in another company is less than the acquirer’s share of the fair value of net assets of the company being acquired. At the end of your preliminary analysis, you believe that a business combination results in a bargain purchase. What is your next step?
A. Recognize an immediate gain in the consolidated statement of profit and loss without further analysis.
B. Recognize a liability in the consolidated balance sheet.
C. Contact the acquiree to confirm its intention.
D. Reassess each step of your analysis to confirm your preliminary findings.
Explain how purchase accounting is implementedin a merger. Does the accounting profession nowrequire this method? How is any premium that theacquiring firm paid over the acquired firm’s bookvalue treated subsequent to a merger?
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Similar questions
- Which is not a valid, acceptable reason for companies to merge? Synergistic benefits arising from mergers. Reduction in competition resulting from mergers. Acquisition of assets at below replacement value. Attempts to minimize taxes by acquiring a firm with large accumulated losses that can be used immediately. Using surplus cash to acquire another firm and prevent unfavorable tax consequences for shareholders.arrow_forwardWhen does gain recognition accompany a business combination?a. When a bargain purchase occurs.b. In a combination created in the middle of a fiscal year.c. In an acquisition when the value of all assets and liabilities cannot be determined.d. When the amount of a bargain purchase exceeds the value of the applicable noncurrent assets (other than certain exceptions) held by the acquired company.arrow_forwardIn the business combination of Polka and Spot Select one: a. all of the costs except those of registering and issuing the securities are included in the purchase price of Spot. b. the salaries of Polka's employees assigned to the merger are treated as expenses. c. only the accounting and legal fees are included in the purchase price of Spot d. the costs of registering and issuing the securities are included as part of the purchase price for Spot.arrow_forward
- In a merger of consolidation, or transfer to a controlled corporation, loss is deductible. Group of answer choices True Falsearrow_forwardChoose the correct. According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should bea. Capitalized as part of the overall fair value acquired in the merger.b. Recorded as an expense in the period the merger takes place. c. Included in recognized goodwill.d. Written off over a five-year maximum useful life.arrow_forwardAccording to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should bea. Capitalized as part of the overall fair value acquired in the merger.b. Recorded as an expense in the period the merger takes place.c. Included in recognized goodwill.d. Written off over a five-year maximum useful life.arrow_forward
- Please answer the following questions relating to unrealized profit in a business combination. 1) Intra entity transfers between the components of business combinations are quite common. Why do these intra company transactions occur frequently? 2) How are unrealized inventory gross profit created, and what are the necessary consolidation entries created to account for these gains? 3) How do intra entity profit present in any year affect the noncontrolling Interest calculation?arrow_forwardTRUE OR FALSE 1. The merger of two completely unrelated enterprises is referred to as a congeneric merger, however, the merger of somewhat related companies is referred to as a conglomerate merger of somewhat related companies is referred to as conglomerate merger. 2. if there is sufficient proof that the acquisition has been made for a business purpose and the shareholders of the target firm will be compensated with voting shareholders of the target firm will be compensated with voting shares in the acquiring firm, the acquisition will be non-taxable. 3. with cash consideration, the stockholders of the target firm share the gains and losses of acquisition and vice-versa. 4. A merger is the total absorption of one firm by another, however with a consolidation an entirely new firm is created. 5. A white knight is a friendly suitor that a target firm turns to as an alternative to a hostile bidder.arrow_forwardS1: Under the acquisition method, if the fair values of identifiable net assets exceed the value implied by the purchase price of the acquired company, the excess should be accounted for goodwill. S2: With an acquisition, direct and indirect expenses are considered a par of the total cost of the acquired company. Both statements are Only S1 is Only S2 is Both statements are 2. Following the completion of a business combination in the form of a statutory consolidation, what is the balance in the new corporation’s Retained earningsaccount? The acquirer retained earnings accountbalance Thesum of the acquirer and acquiree retained earnings account The acquiree retained earnings accountbalance Zero 3. S1: The acquisition-related costs in a business combination to be expensed immediately include cost of issuing debt securities. S2: In a business combination any “gain on bargain purchase” shall be recognized in other comprehensive income. Only S2 is Both statements are Both statements…arrow_forward
- Morgan Company acquires all of the outstanding shares of Jennings, Inc., for cash. Morgan transfers consideration more than the fair value of the company’s net assets. How should the payment in excess of fair value be accounted for in the consolidation process?arrow_forwardWhich one of the following statements correctly applies to a merger? Multiple Choice The acquiring firm does not have to seek approval for the merger from its shareholders. The shareholders of the target firm must approve the merger. The acquiring firm will acquire the assets but not the debt of the target firm. The merged firm will have a new company name. The titles to individual assets of the target firm must be transferred into the acquiring firm's name.arrow_forward1. As a result of the merger, what is the goodwill? 2. What is the Retained Earnings after the merger? 3. What is the net increase or (decrease) in the stockholders' equity of SD Corp. after the merger?arrow_forward
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