CPA Exam 2004: Financial Accounting and Reporting [Paperback]

Vincent W. Lambers (Author), Donald Hanson (Author), William A. Grubbs (Author)

Book Description

ISBN-10: 1892115662 | ISBN-13: 978-1892115669 | Publication Date: February 29, 2004

CPA Exam 2004: This book covers the Financial Accounting and Reporting section of the new computer based CPA Exam. Inside you will find review material, examples and 1,000 practice multiple choice questions with solutions (70-80% of exam) and simulation problems.

Editorial Reviews

About the Author

Vincent Lambers is the founder of Lambers CPA Review which has been training CPA exam candidates since 1966. William Grubbs is the director of the Lambers CPA Review course in Greensboro, North Carolina. Over the last nine years the Lambers course has produced five gold medal winners, one silver medal and two bronze medals in the state of North Carolina alone.

Excerpt. © Reprinted by permission. All rights reserved.

Chapter Four
Consolidated Financial Statements

BUSINESS COMBINATIONS AND SUBSTANCE OVER FORM

"A business combination occurs when a corporation and one or more incorporated or unincorporated businesses are brought together into one accounting entity. The single (accounting/economic) entity carries on the activities of the previously separate, independent enterprises" (APB #16). The accounting concept of a business combination emphasizes the single entity and the independence of the combining companies prior to the combination. In a business combination one or more of the combining companies may lose their separate legal identities; however, dissolution of the legal entities is not necessary within the accounting concept of a business combination. Although financial accounting is concerned with both the legal and economic effects of transactions and events, and many of its conventions are based upon legal rules, the economic substance of transactions and events is usually emphasized when the legal form differs from the economic substance and suggests different treatment. Therefore, financial accounting emphasizes the single entity in business combinations even if more than one legal entity continues to exist (substance over form).

TYPES OF BUSINESS COMBINATIONS

Merger: One corporation acquires the assets, liabilities, and operations of another business entity and that entity ceases to exist and is dissolved. All assets and liabilities are recorded on the books of the acquiring corporation.

Consolidation: A new corporation is formed to acquire the assets, liabilities, and operations of two or more separate business entities, and those entities cease to exist and are dissolved. All assets and liabilities are recorded on the books of the new corporation. Note the distinction between Consolidation and Accounting Consolidation shown below.

Acquisition: One corporation (the investor/parent) acquires controlling interest (greater than 50% of the outstanding common stock) in another corporation (the investee/subsidiary). Both corporations continue their separate legal existence. The assets and liabilities, although under the control of a single business entity (the parent), are recorded on two separate sets of books.

ACCOUNTING CONSOLIDATIONS

Preparation of financial statements for the single entity resulting from business combinations classified as mergers and consolidations is accomplished through the normal accounting process, as all assets, liabilities and operations are recorded on a single set of books. However, preparation of single entity financial statements for business combinations classified as acquisitions generally requires the bringing together (accounting consolidation) of assets, liabilities, and operations from two sets of books (the parent and subsidiary) as the combining companies continue their separate legal existence, and maintain their own accounting records. This accounting consolidation is based on the financial accounting concept of substance over form.

FASB Statement #94 requires that all majority-owned subsidiaries (companies in which a parent has a controlling financial interest through direct or indirect ownership of a majority voting interest) be consolidated except those in which control does not rest with the majority owner (subsidiary is in legal reorganization or in bankruptcy or operates under foreign exchange restrictions, controls, or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent's ability to control the subsidiary).

Product Details

• Paperback: 916 pages
• Publisher: Lambers Pubns (February 29, 2004)
• Language: English
• ISBN-10: 1892115662
• ISBN-13: 978-1892115669
• Product Dimensions: 10.7 x 7.9 x 1.9 inches
• Shipping Weight: 4.2 pounds
• Amazon Best Sellers Rank: #5,588,321 in Books (See Top 100 in Books)