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Exam 1

3 ways to report Investments in other companies 1 Fair-value Method 2 Consolidation 3 Equity Method
Fair-value Method Investor hold small % of investee's outstanding stock Classified as either Trade Securities or Available-for-Sale Securities
Trade Securities Held for sale for short term Unrealized gains/losses
Available-for-Sale Securities Anything not classified as Trade Securities
Consolidation Investor owns more than 50% of investee
Equity Method Ability to exercise influence Investor owns 20-50% of investee
Why do organizations combine Vertical integration, Cost savings, Quick access to new markets, Economies of scale, More attractive financing opportunities, and Diversification of business risk
Business Combination A transaction in which an acquirer obtains control over another business.
Statutory Merger Investor acquires assets and liabilities of investee
Acquisition Method (Consolidation) Used when there is a change in ownership Fair-value of acquired business as a whole
3 consolidation methods 1 Equity Method 2 Initial Value Method 3 Partial Equity Method
Initial Value Method Also known as Cost Method Similar to Fair-value Method
Partial Equity Method Similar to Equity Method, but simpler
Consolidation Worksheet entries 1 (S) Subsidiary's equity 2 (A) Adjusted to Fair Value 3 (I) Sub's income account is eliminated 4 (D) Sub's dividends are eliminated 5 (E) Amortize expense is recorded
Created by: 1447888145
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