Should we consolidate finance subsidiaries?

Article Abstract:

An Exposure Draft issued by the Financial Accounting Standards Board, 'Consolidation of all Majority-Owned Subsidiaries,' would require all majority-owned subsidiaries to be consolidated. The proposed statement would become effective for fiscal years ending after December 15, 1987, and would change the way in which captive finance companies are accounted for and reported on by their parent companies. A survey of the reporting practices of 54 firms suggests that companies that do not use consolidated reporting formats are prone to inconsistencies in financial statements. Consolidated reporting is needed in order to comprehensively represent the economic entity. Also, failure to consolidate the majority-owned finance subsidiary can cause the debt-to-equity ratio to be much lower than it would be with consolidation.

Methods, Economic aspects, Accounting, Subsidiary corporations, Subsidiaries, Financial statements, Corporation reports, Company reports, Consolidated financial statements

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Why LBOs are popular

Article Abstract:

Since 1983, half (or more) of all corporate acquisitions have taken the form of leveraged buyouts (LBOs). Because LBOs combine acquisitions with refinancing, they enable purchasers to procure businesses that would otherwise be unobtainable (due to asking prices). For example, in 1981 participants in the leveraged buyout of Gibson Card Co. from RCA had to come up with only $1 million of the $81 million cash asking price. The structuring of LBOs, their tax advantages, the financial and economic risks related to LBO parties, and economists criticisms of LBOs are discussed.

Analysis, Innovations, Acquisitions and mergers, Corporate reorganizations, Leveraged buyouts

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The case against deferred taxes

Article Abstract:

The Financial Accounting Standards Board (FASB) seeks new reporting rules covering deferred taxes. Most accountants believe the present requirements for deferred tax reporting to be too expensive and complex. A survey on corporate reports for 1980, covering the largest 250 corporations on the Fortune 500 list, revealed that 27 firms announced deferred tax liabilities of between 20 percent and 39 percent from their shareholders' equity.

Planning, Liabilities (Accounting), Deferred tax (Accounting)

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