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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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
- When 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 a merger of consolidation, or transfer to a controlled corporation, loss is deductible. Group of answer choices True Falsearrow_forwardChoose the correct. When 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_forward
- How does a merger allow a firm to circumvent tax laws?arrow_forwardPlease 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_forward33. A purchaser of a business will generally prefer which of the following? An asset purchase to receive new basis for depreciation A stock purchase because the seller will receive capital gains Utilizing a §338(g) election If the selling entity is an S Corporation making a joint §338(h)(10) election All of the above A,C,&D What form is required to report the allocation of the purchase price? ____________arrow_forward
- In the context of mergers and acquisitions, which tax strategy involves combining two separate entities to share tax attributes while maintaining their legal identities? A) Tax consolidation B) Tax arbitrage C) Tax deferral D) Tax inversionarrow_forwardA consolidation adjustment will have a tax effect if: Select one: A. It adjusts the carrying amount of an asset B. It adjusts the carrying amount of liabilityC. All of the above D. It recognizes assets and liabilities not recorded in accounting records of groupcompaniesarrow_forwardWhich of the following statements regarding the accounting for business combinations is false? Review Later The acquirer in a business combination will anly recognize the labilities assumed if they meet the definition of liabilities and are part of the business combination transaction. Under the acquisition method, the identifiable assets acquired during a business combination are measured at their acquisition- date fair values. Goodwill is the difference between the consideration transferred by the acquirer to the acquiree and the fair value of identifiable assets acquired. The identifiable assets acquired, liabilities assumed, and noncontrolling interest in the acquiree are recognized separately from the goodwill arising out of a business combination.arrow_forward
- S1: The acquisition-related costs in a business combination to be expensedimmediately include cost of issuing debt securities. S2: In a business combination any “gain on bargain purchase” shall be recognized in other comprehensive income. A. Only S1 is correct.B. Only S2 is correct.C. Both statements are incorrect.D. Both statements are correct.arrow_forwardIf a corporation sells certain capital equipment for more than its initial purchase price, the difference between the sale price and the purchase price is called a(n). O revenue gain O abnormal gain O capital gain O ordinary gainarrow_forwardUnder PFRS 3, when is a gain recognized in consolidating financial information? Group of answer choices a.When the amount of a bargain purchase exceeds the value of the applicable liability held by the acquired company. b.In an acquisition when the value of all assets and liabilities cannot be determined. c.When any bargain purchased is created d.In a combination created in the middle of the fiscal yeararrow_forward
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