First, lets think about the basics. Answer the following: 1) Describe the accounting concept of a business combination. Is dissolution of all but one of the separate legal entities necessary in order to have a business combination? Explain. 2) What are the legal distinctions between a business combination, a merger, and a consolidation? 3) When does goodwill result from a business combination? How does goodwill affect reported net income after a business combination? 4) What is a bargain purchase? Describe the accounting procedures necessary to record and account for a bargain purchase. 5) Compare the recognition criteria for intangible assets acquired in a business combination to the ones for internally-generated intangible assets. Discuss whether a companys workforce can be recognized in the course of a business combination. 6) How does a company go about determining the fair value at acquisition date? What is the fair value hierarchy? 7) Which valuation methods are allowed for the measurement of intangible assets acquired in the course of a business combination? Which input parameters are typically needed when measuring intangible assets (using one of the methods identified above)?

British American tobacoo and Raynolds tobacco company

Now, on to your business combinations. Answer the following questions using an internet search:

8) What information is available about recent merger activity (last 5 years) for both the acquirer and acquiree? What was the companiesmost significant acquisition other than the one you are studying? What was the business strategy underlying the companies merger activity? How were the acquisitions financed (common stock, preferred stock, cash, debt, or some combination)? Was it a vertical, horizontal, or conglomerate merger?

Visit the website of the company. Access the investor relations link and find the annual report from the year of the merger and from the previous and subsequent years. If it is not there, go to the SECs website at www.sec.gov. Do not use financial statements from Yahoo!, Google, or any other site. Answer the following:

9) In your combination, which company acquired the other and which company was considered the survivor?

10) What was the business strategy underlying the merger? How wasthe acquisition financed (common stock, preferred stock, cash, debt, or some combination)? Was it a vertical, horizontal, or conglomerate merger?

Answer the following using the financial statements in the year after your merger closed:

11. What form of business combination brought the two companies together, and what was the resulting corporate structure? How did the firms account for the acquisition? How did the firms account for its acquisition-related expenses? Was there any contingent consideration? If so, how much?

12. What was the cost of the merger? How was that cost allocated (What allocations were made to the assets acquired and liabilities assumed in the acquisition)? Was goodwill recorded? If so, how much? If not, was it considered a bargain purchase? Provide a calculation showing how the acquirer determined the amount allocated to goodwill or bargain purchase.

13. Was there in-process research and development acquired in the combination? If so, how did the firms account for it? Were other intangible assets acquired in the combination? What were they and how did the firms account for them?

14. Did the firms recognize any acquired contingencies for its acquisition? If it did, how were they measured? If not, why not? Under what circumstances should a firm recognize an asset acquired or a liability assumed in a business combination that arises from a contingency? How should the firms account for its acquired contingencies in periods after the acquisition date? What is the disclosure requirement for any acquired contingencies?

15. What was the impact of the merger on

a. cash?

b. net accounts receivable?

c. inventories?

d. long term assets?

e. accounts payable?

f. long term debt?

16. Based on your knowledge, what journal entry do you think the acquirer prepared for the combination?