Advanced Financial Accounting
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Consolidated Financial Statements - (correct Answer) - Portray the related companies as if they were
actually a single company.
Subsidiary - (correct Answer) - Is a corporation that is controlled by another corporation
Parent Company - (correct Answer) - The controlling company who usually owns through majority
ownership of its common stock
Special-Purpose Entity (SPE) - (correct Answer) - A financing vehicle that is not a substantive operating
entity, usually one created for a single specified purpose.
Pooling-Of-Interests - (correct Answer) - 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.
Spin-Off - (correct Answer) - 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.
Split-Off - (correct Answer) - 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
Business Combination - (correct Answer) - Occurs when "...an acquirer obtains control of one or more
businesses."
Concept of Control - (correct Answer) - Relates to the ability to direct policies and management
Merger - (correct Answer) - Business combination in which the acquired company's assets and liabilities
are combined with those of the acquiring company.
Controlling Ownership - (correct Answer) - 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.
Noncontrolling Ownership - (correct Answer) - 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 - (correct Answer) - One company may have a beneficial interest in another
, entity even without a direct ownership interest.
Primary Beneficiary - (correct Answer) - 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
Statutory Merger - (correct Answer) - Is a type of business combination in which only one of the
combining companies survives and the other loses its seperate identitiy.
Liquidated - (correct Answer) - When the acquired company's assets and liabilities are transferred to the
acquiring company, and the acquired company is disolved
Statutory Consolidation - (correct Answer) - 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.
Stock Acquisition - (correct Answer) - Occurs when one company acquires the voting shares of another
company and the two companies continue to operate as seperat, but related, legal entities
Parent-Subsidiary Relationship - (correct Answer) - The relationship that is created in a stock acquisition
Hostile Takeover - (correct Answer) - 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.
Tender Offer - (correct Answer) - Invities the shareholders of the other company to exchange their shares
for securities or assets of the acquiring company.
Noncontrolling Interest - (correct Answer) - The total of the shares of an acquired company not held by
the controlling shareholder
Acquisition Method - (correct Answer) - The acquirer recongnizes all assets acquired and liabilities
assumed in a business combination and measures them at their acquisition-date fair values.
Goodwill - (correct Answer) - 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
Differential - (correct Answer) - 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
Bargain Purchase - (correct Answer) - 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.
Cost Method - (correct Answer) - Is used for reporting investments in equity securities when both
consolidation and equity-method reporting are inappropiate.
Equity Method - (correct Answer) - 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.
Save
Consolidated Financial Statements - (correct Answer) - Portray the related companies as if they were
actually a single company.
Subsidiary - (correct Answer) - Is a corporation that is controlled by another corporation
Parent Company - (correct Answer) - The controlling company who usually owns through majority
ownership of its common stock
Special-Purpose Entity (SPE) - (correct Answer) - A financing vehicle that is not a substantive operating
entity, usually one created for a single specified purpose.
Pooling-Of-Interests - (correct Answer) - 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.
Spin-Off - (correct Answer) - 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.
Split-Off - (correct Answer) - 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
Business Combination - (correct Answer) - Occurs when "...an acquirer obtains control of one or more
businesses."
Concept of Control - (correct Answer) - Relates to the ability to direct policies and management
Merger - (correct Answer) - Business combination in which the acquired company's assets and liabilities
are combined with those of the acquiring company.
Controlling Ownership - (correct Answer) - 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.
Noncontrolling Ownership - (correct Answer) - 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 - (correct Answer) - One company may have a beneficial interest in another
, entity even without a direct ownership interest.
Primary Beneficiary - (correct Answer) - 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
Statutory Merger - (correct Answer) - Is a type of business combination in which only one of the
combining companies survives and the other loses its seperate identitiy.
Liquidated - (correct Answer) - When the acquired company's assets and liabilities are transferred to the
acquiring company, and the acquired company is disolved
Statutory Consolidation - (correct Answer) - 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.
Stock Acquisition - (correct Answer) - Occurs when one company acquires the voting shares of another
company and the two companies continue to operate as seperat, but related, legal entities
Parent-Subsidiary Relationship - (correct Answer) - The relationship that is created in a stock acquisition
Hostile Takeover - (correct Answer) - 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.
Tender Offer - (correct Answer) - Invities the shareholders of the other company to exchange their shares
for securities or assets of the acquiring company.
Noncontrolling Interest - (correct Answer) - The total of the shares of an acquired company not held by
the controlling shareholder
Acquisition Method - (correct Answer) - The acquirer recongnizes all assets acquired and liabilities
assumed in a business combination and measures them at their acquisition-date fair values.
Goodwill - (correct Answer) - 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
Differential - (correct Answer) - 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
Bargain Purchase - (correct Answer) - 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.
Cost Method - (correct Answer) - Is used for reporting investments in equity securities when both
consolidation and equity-method reporting are inappropiate.
Equity Method - (correct Answer) - 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.
