Can someone please help clarify for me the difference between a business combination, acquisition accounting and consolidations? I feel like they are being used interchangeably and I am having trouble distinguishing one from the other.
Business combination is when company A merges with company B to establish a new entity C.
Bussiness acquisition is when A buys out (either by issuing stock or paying cash) B and now B is a subsidiary of A.
Consolidation is the year end treatment of an acquisition or when just a parent entity is really diversified and has a lot of subsidiaries, it involves eliminating 100% of intercompany transactions in that period (by reversing the JEs) even if they own less than 100%, also all equity accounts of the subsidiaries are eliminated (unless they want to present a combined financials then subs equities stays intact) but most of the time its consolidated, the rest of b/s accounts added across either way, Becker does a really good job dealing with these..
You really just need to stick with them and you will be fine, with these notes to ease it :
1) yes for exam purposes they really use the terms interchangeably
2) legal and out of pocket exps. Recognized in full (unlike equity or cost/fv method when they are capitalized as a part of the investment)
3) to compute gain or goodwill use the consolidation JE ( car in big) no gain/good will ever show in the orginial acquisition entry.
4) stock issuance or any SEC related costs gets subtracted from apic for the initial acquisition entry to balance (hence to determine the gain or the goodwill use the eliminating JE.