Wall Street Words word of the day = Consolidation
Hello YouTube, Todd Ault here, and Welcome to Wall Street Words! Today's Wall Street term is "Consolidation"
Now I don't mean Consolidation of an industry, I mean Consolidation on financial reporting. So, I'm going to give you the best example I can. Everyone should know this, Berkshire Hathaway ran by Warren Buffett and Charlie Munger, that company, Berkshire Hathaway, which is incorporated in Delaware, headquartered in Omaha, owns 80 other companies, some of them public, but most of them private. Berkshire Hathaway consolidates all their financial audits into one report in that 3433 filer with the S.E.C. and they can consolidate all their financial accounting into one company and they report it publicly. That's called Consolidation in consolidation.
There's also two kinds of Consolidation. There's a kind of Consolidation where you do doing financial reporting like you're going to report on your "10-K's" (Form 10-K) and "10-Q's" (Form 10-Q), words we've talked about before. Follow Wall Street words to see that just a little plug or you can be talking about tax consolidation. Now, you have to own 80% of the subsidiary. Berkshire Hathaway has to own 80% of, say, "See's Candy". Now, in this case, it owns 100%, but as long as it owns 80%, it can consolidate in its tax return. You'll frequently see Warren Buffett buy a company and always buy at least 80% when he wants to own control because he wants to consolidate in that (in the) one tax return. Consolidation is a financial reporting, lots of companies do this like Lowe's, where they own multiple public companies. Berkshire Hathaway, even GE has multiple divisions that it consolidates. Today's word is "Consolidation."
Definition - A combination of two or more firms into a completely new company. Assets and liabilities of the firms are absorbed by the new company. Consolidation is also defined as a set of financial statements that presents a parent and a subsidiary company as one company.
Warner Cable Corporation purchased Time, Inc. and established the new Timer Warner Corporation. For accounting, for example, that XYZ Corporation buys 100% of the net assets of ABC Manufacturing for a price of $1 million, and that the fair market value of ABC's net assets is $700,000. When a CPA firm puts together the consolidated financial statements, ABC's net assets are listed with a value of $700,000, and the $300,000 amount paid above the fair market value is posted to a goodwill asset account.
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