Merger & Acquisition Accounting Flashcards

In a carve-out transaction, how are general corporate overhead costs historically shared between the parent and the carved-out entity typically presented in the carve-out financial statements?

Answer: Allocated to the carved-out entity based on a reasonable allocation methodology

Carve-out financial statements require allocation of shared costs using a reasonable method (e.g., headcount, revenue) to present a standalone view of the entity's results.

Under the purchase price allocation (PPA) in a business combination, which of the following intangible assets is most likely to qualify for separate recognition from goodwill?

Answer: Trade name with ongoing commercial use

A trade name meets the separability or contractual-legal criterion for recognition as a separate intangible asset apart from goodwill.

How does the recognition of a deferred tax liability on a fair value step-up of an acquired depreciable asset affect the goodwill calculation?

Answer: It increases goodwill by the amount of the deferred tax liability

A deferred tax liability recognized on the fair value step-up reduces the net fair value of identifiable assets, which increases the residual goodwill.

An acquirer issues $50M in stock as consideration for a target. Between the announcement date and the closing date, the acquirer's stock price drops 10%. For purchase price accounting purposes, consideration transferred is measured at:

Answer: The stock price on the acquisition (closing) date

Under ASC 805, equity instruments issued as consideration are measured at fair value on the acquisition date (closing date), not the announcement date.

Which approach is used to determine the fair value of a customer list intangible asset in a purchase price allocation?

Answer: Income approach — multi-period excess earnings method (MPEEM)

Customer relationships are most commonly valued using the multi-period excess earnings method (MPEEM) under the income approach, which isolates cash flows attributable to the customer list.

In a leveraged buyout (LBO), which of the following best describes the typical push-down accounting treatment under US GAAP?

Answer: Push-down accounting is optional for the acquired entity and permitted when a change-of-control event occurs

ASC 805-50 allows (but does not require) an acquired entity to elect push-down accounting — recording the new basis from the acquisition in the acquired entity's standalone financial statements — upon a change-of-control event.

When a company acquires a subsidiary and there is a noncontrolling interest, where is the NCI presented on the consolidated balance sheet?

Answer: As a separate component within consolidated stockholders' equity

ASC 810 requires NCI to be presented as a separate component of consolidated stockholders' equity, not as a liability or mezzanine item.