Accounting for M and A, Credit, and Equity Analysts

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By: James Morris

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Published: 24th June 2004

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Table of Contents
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As each new accounting question or scandal hits Wall Street, investment professionals too often find themselves asking, "What happened?" "Accounting for M&A, Equity, and Credit Analysts" answers the most common accounting questions, all in an easy-to-follow format designed to provide investment professionals with real-world, hands-on knowledge of key accounting treatments, models, and practices. Written by well-known M&A expert James E. Morris, this versatile accounting desk reference bridges the gap between what is taught in business school and what is needed in the real world.

Preface	p. xi
Introduction	p. xiii
List of Abbreviations	p. xv
Equity Method of Accounting for Investments	p. 1
Introduction	p. 1
Description of the Equity Method	p. 1
Tax Considerations When Using the Equity Method	p. 5
Accounting under the Equity Method--Excess of Cost over Equity Purchased	p. 8
Accounting under the Equity Method--Intercompany Transactions	p. 10
Guidance for Applying the Equity Method	p. 12
SEC Staff Views Concerning the Equity Method	p. 17
When to Use the Equity Method--Summary	p. 17
Accounting for Cash Flows from Equity Method Investments	p. 18
Modeling the Equity Method of Accounting in Projection Models	p. 19
Chapter Summary	p. 22
Minority Interests	p. 25
Introduction	p. 25
Minority Interests	p. 25
Overview of Accounting for Minority Interests	p. 26
Treatment of Minority Interests for Enterprise Valuation	p. 31
Forecasting Minority Interests	p. 32
Treatment of Minority Interests in M&A Transactions	p. 32
Modeling Minority Interests	p. 35
Chapter Summary	p. 36
Deferred Income Taxes and Income Tax Reporting	p. 39
Introduction	p. 39
Basic Principles of Tax Reporting	p. 39
The First Principle	p. 40
The Second Principle	p. 40
The Third Principle	p. 50
The Fourth Principle	p. 50
Treatment of Deferred Income Tax Items in M&A Transactions	p. 52
Modeling Income Taxes in Projection Models	p. 54
Calculating the Provision for Taxes--Detailed Calculation	p. 57
Chapter Summary	p. 59
Deciphering the Deferred Tax Footnote	p. 61
Introduction	p. 61
Financial Statement Disclosure for Income Taxes	p. 61
Reconstructing Deferred Taxes on the Financial Statements	p. 68
Problems with Ratio Analysis	p. 73
Valuation of Deferred Tax Items	p. 74
Chapter Summary	p. 74
Estimating the Tax Basis of a Firm's Assets	p. 77
Introduction	p. 77
Factors Affecting Differences Between Asset's Book and Tax Bases	p. 78
Depreciation (or Amortization) Using Different Schedules	p. 78
Recognizing Asset Impairments	p. 84
Transaction Fair Value Adjustments	p. 86
Asset Sales or Deemed Asset Sales	p. 87
Estimating the Tax Bases of Target Company's Assets--Known Balance Sheet	p. 87
Estimating the Tax Bases of Target Company's Assets--Unknown Balance Sheet	p. 91
Chapter Summary	p. 93
Pension and Other Postretirement Benefits	p. 95
Introduction	p. 95
Pension versus Other Postretirement Benefit Plans	p. 96
Types of Pension Plans	p. 96
Economic Objectives of Pension Plans	p. 97
How Pension Plans Work	p. 98
Net Periodic Pension Cost	p. 101
Minimum Pension Liability	p. 112
Pension Benefits Summary	p. 112
Other Postretirement Benefit Plans	p. 113
Net Periodic Postretirement Benefit Cost	p. 114
Effects of Business Combinations	p. 116
Chapter Summary	p. 118
Deciphering the Pension Footnote	p. 119
Introduction	p. 119
Pension Benefit Disclosure Requirements	p. 120
Benefit Obligation Reconciliation	p. 120
Plan Fair Value Reconciliation	p. 126
Employer Securities Included in Plan Assets	p. 129
Net Periodic Benefit Cost Disclosure	p. 130
Funded Status and Unrecognized Items	p. 130
Rate Disclosures	p. 130
Health Care Disclosures	p. 132
Chapter Summary	p. 133
Analyzing the Firm's Pension Cash Flows	p. 135
Introduction	p. 135
Estimating Future Funding Cash Flows	p. 136
Employer Company's Plan Assets and Liabilities in an Acquisition	p. 142
Plan Liquidation Values	p. 143
Chapter Summary	p. 144
Employee Stock Options	p. 145
Introduction	p. 145
The Intrinsic Valuation Method	p. 145
The Fair Value Method	p. 147
Evaluating the Firm's Inputs to the Option-Pricing Model	p. 148
Tax Effects of Employee Stock Options	p. 150
Calculation of Diluted Earnings per Share for Companies Expensing Stock Options	p. 150
Accounting for Target Stock Options Rolled Over in a Purchase Acquisition	p. 153
Projecting Earnings Per Share (EPS) for Option-Intensive Firms	p. 155
Chapter Summary	p. 156
Restructuring Charges	p. 157
Introduction	p. 157
FASB's New Changes to Financial Accounting for Restructuring Charges	p. 158
Restructuring Charges--U.S. GAAP	p. 158
Restructuring Charges--International Accounting Standards	p. 168
Disclosure of Restructuring Charges	p. 169
Restructuring Liabilities in Business Combinations	p. 169
Chapter Summary	p. 170
Discontinued Operations	p. 173
Introduction	p. 173
How Results of Discontinued Operations Impact Earnings from Continuing Operations	p. 173
Sources of Classification Bias	p. 175
Criteria for Classifying Items as Discontinued Operations	p. 176
The Operations Being Discontinued--Component of a Business	p. 176
Disposal Criteria	p. 177
International Accounting Treatment of Discontinued Operations	p. 179
Chapter Summary	p. 180
Net Operating Loss Deductions	p. 183
Introduction	p. 183
Net Operating Loss Deductions	p. 183
Other Tax Considerations Relating to NOLs	p. 186
M&A Considerations Relating to NOLs	p. 186
NOL Effects on Financial (GAAP) Reporting	p. 187
Valuation Considerations	p. 189
Modeling NOL Carrybacks and Carryforwards	p. 190
Chapter Summary	p. 195
Purchase Accounting for Business Combinations	p. 197
Introduction	p. 197
Purchase Accounting Basics	p. 198
Calculating Target Company's Net Identifiable Assets	p. 200
The Net Identifiable Assets Calculation	p. 209
Calculating the Purchase Price	p. 209
Transaction Fees	p. 210
Fair Value of the Consideration Given	p. 213
Calculating Goodwill	p. 215
Negative Goodwill	p. 216
Amortization of Goodwill	p. 219
Accretion and Dilution of Earnings	p. 222
Pro Forma Presentation (as If Combined)	p. 229
Statements of Cash Flows Following Business Combinations	p. 230
Limitations on the Use of Target Company's Net Operating Loss (NOL) Carryforwards	p. 230
Effects on Minority Interests in Business Combination Transactions	p. 231
Chapter Summary	p. 233
Deemed Asset Sales under IRC Sections 338(h)(10) or 338(g)	p. 237
Introduction	p. 237
Overview of the Section 338(h)(10) Election	p. 237
Benefits of Section 338(h)(10) Sales	p. 239
Determining the Sale Price for a Section 338(h)(10) Election	p. 242
Modeling Section 338(h)(10) Transactions	p. 247
Chapter Summary	p. 250
Glossary	p. 253
Endnotes	p. 259
Index	p. 265
Table of Contents provided by Ingram. All Rights Reserved.

ISBN: 9780071429696
ISBN-10: 0071429697
Audience: General
Format: Hardcover
Language: English
Number Of Pages: 288
Published: 24th June 2004
Publisher: McGraw-Hill Education - Europe
Country of Publication: US
Dimensions (cm): 24.5 x 20.0 x 2.0
Weight (kg): 0.75
Edition Number: 1