Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 21

Following are a number of the key terms and concepts introduced in the chapter, along with a list of corresponding definitions. Match the appropriate letter for the key term or concept to each definition provided (items 1–8). Note that not all key terms and concepts will be used.

a. Explanatory notes to financial statements	h. Prospectus
b. Five-year summary	i. Purchase accounting
c. Significant accounting policies	j. Corporate governance
d. Stock option plan	k. Contingencies and commitments
e. Accounting change	l. Business segment
f. Business combination	m. Management’s statement of responsibility
g. Proxy

_____A method of accounting for the purchase of another company that records as the cost of the investment the value of the cash and/or securities paid, less the liabilities assumed in the transaction.

Step 1 of 2

Mergers and Acquisitions

To strengthen the company’s performance and value in the market, a company can enter into mergers and/or acquisitions. When two or more companies decide to group together and become a single company, the output is more than the total of their individual data, owing to benefits of synergy.

One company can buy the other company in the market, it is known as the acquisition of the company in the accounting terminology.