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viPreface

as a stand-alone section and/or incorporated into the 13. A few short-answer questions (and solutions) are peri-
mergers and acquisition Chapters 4 or 5. Thus, if a pro- odically provided throughout each chapter to enable
fessor would like to cover global mergers and acquisi- students to test their knowledge of the content before
tion, this can easily be accomplished. moving on.
4. FASB’s conceptual framework is discussed as it relates 14. The organization of the worksheets applies a format
to Advanced Accounting in Chapter 1. We also include that separates accounts to the income statement, the
marginal references to Related Concepts throughout statement of retained earnings, and the balance sheet
the book. The GASB’s conceptual framework is dis- in distinct sections. The worksheets are placed near the
cussed in Chapters 17 and 18. relevant text.
5. Questions or problems related to Business Ethics 15. All illustrations are printed upright on the page and
are included in the end-of chapter materials for labeled clearly for convenient study and reference.
every chapter. 16. Entries made on consolidated statements workpapers
6. We include real-company annual reports or excerpts are presented in general journal form. These entries are
from reports with related questions (Analyzing Finan- shaded in blue to distinguish them from book entries,
cial Statements) in the end-of-chapter materials and/or to facilitate exposition and study. To distinguish among
online for most chapters excluding Chapters 15 and 16. parent company entries and workpaper entries in the
7. In Chapter 9 of the 6th edition, the homework material body of the text, we present parent entries in gray and
includes the effective interest, in addition to the workpaper entries in blue.
straightline method for amortization of bond premiums 17. We include a feature that requires students to research
and discounts. The 6th edition also includes online the FASB Codification in order to locate the current
appendices on deferred taxes which are related to the standard that applies to various issues. These exercises
topics in Chapter 6 and 7. (Go to www.wiley.com/go/ appear before the problems at the end of each chapter
jeter/AdvancedAccounting7e.) and often, but not always, relate to topics addressed
8. The in-the-news boxes that appear throughout the book in that chapter. (Similar questions appear on the
reflect recent business and economic events relevant to CPA exam.)
the subject matter. 18. Summaries appear at the end of each chapter, and a
9. We have integrated goodwill impairment into some glossary of key terms is provided at the end of the book.
illustrations in the body of Chapter 5, as well as in sev- 19. An appendix to Chapter 1 has been posted online at
eral homework problems. We illustrate the newly mod- www.wiley.com/go/jeter/AdvancedAccounting7e.
ified goodwill impairment test. The simplification of This appendix illustrates a strategy or technique for
the goodwill impairment tests for smaller companies is analyzing a given company, such as a potential acqui-
also discussed, along with the role of qualitative factors sition target. This strategy may be applied in some of
for determining which steps are necessary. There are the end-of-the-chapter Analyzing Financial Statements
exercises on this topic in Chapters 2 and 5. (AFS) problems.
10. At the beginning of Chapter 4, we discuss three 20. Chapters 17 through 19 reflect the latest GASB and
methods of accounting for investments, depend- FASB pronouncements related to fund accounting.
ing on the level of ownership and the presumption of
influence or control. We emphasize the importance of Clearly, there are more topics in this text than can be
the complete equity method for certain investments that covered adequately in a one semester or one-quarter course.
are not consolidated, or in the parent-only statements. We believe that it is generally better for both students and
In addition, online materials include an expanded instructors to cover a selected number of topics in depth
discussion of the accounting for investments. (See rather than to undertake a superficial coverage of a larger
www.wiley.com/go/jeter/AdvancedAccounting7e.) number of topics. Modules of material that an instructor
11. Learning objectives are included in the margins of the may consider for exclusion in any one semester or quarter
chapters, and relevant learning objective numbers are include the following:
provided with end-of-chapter materials. • Chapters 7–9. An expanded analysis of problems in the
12. We continue the use of graphical illustrations, which preparation of consolidated financial statements.
was introduced in prior editions. • Chapter 10. Insolvency—liquidation and reorganization.
Preface vii

• Chapters 11–14. International accounting, foreign ACKNOWLEDGMENTS

currency transactions and translation, and segment and
interim reporting. We wish to thank the following individuals for their sugges-
• Chapters 15 and 16. Partnership accounting. tions and assistance in the preparation of this edition.
• Chapters 17 through 19. Fund accounting, accounting Thank you goes to Barbara Scofield (Washburn
for governmental units, and accounting for nongovern- University), Anthony Abongwa (Monroe College), Jong-
ment–nonbusiness organizations (NNOs). hyuk Bae Darius Fatemi (Northern Kentucky University),
Edward Julius (California Lutheran University), Ron Mano
(Westminster College), Kevin Packard (Brigham Young
SUPPLEMENTS University, Idaho), Ashley Stark (Dickinson State Univer-
sity), Denise Stefano (Mercy College), Deborah Strawser
The following supplements are available on the book com- (Grand Canyon University Online), Lucas (Luc) Ranallo
panion web site: Study Guide, Excel Templates, Power-Point (Vanderbilt University), Joseph Wall (Carthage College),
Slides, Instructors’ Manual, Solutions Manual, Test Bank, and Sheila Reed (State of Tennessee).
and videos for each chapter. These materials are accessible Thank you also goes to Sheila Ammons (Austin Com-
from www.wiley.com/go/jeter/AdvancedAccounting7e. munity College) for preparing the PowerPoint slides, to
TBD for preparing the Study Guide, to TBD for preparing
the Test Bank, and to TBD for their helpful textbook, solu-
WILEYPLUS tions manual, and test bank accuracy review comments.
WileyPLUS is an online learning and assessment environ- Finally, we would like to acknowledge a few indi-
ment, where students test their understanding of concepts, viduals at Wiley who helped all this come together: Ellen
get feedback on their answers, and access learning materi- Keohane, Mary O’Sullivan, Christina Volpe, Beth Pear-
als such as the eText and multimedia resources. Instructors son, Joel Hollenbeck, Tai Harris, Karolina Zarychta, and
can automate assignments, create practice quizzes, assess Maddy Lesure.
students’ progress, and intervene with those falling behind.
 CONTENTS

1 INTRODUCTION TO BUSINESS 2.2 Illustration of Acquisition Accounting 42

COMBINATIONS AND THE CONCEPTUAL 2.3 Bargain Purchase Accounting Illustration
FRAMEWORK 1 (Purchase Price Below Fair Value of Identifiable
Net Assets) 46
Learning Objectives 1 2.4 Measurement Period and Measurement Period
1.1 Growth Through Mergers 1 Adjustments 47
1.2 Nature of The Combination 4 2.5 Goodwill Impairment Test 48
1.3 Business Combinations: Why? Why Not? 5 2.6 Contingent Consideration (Earnouts) 52
1.4 Business Combinations: Historical Perspective 7 2.7 Pro Forma Statements and Disclosure
1.5 Terminology and Types of Combinations 10 Requirement 57
1.6 Takeover Premiums 13 2.8 Leveraged Buyouts 59
1.7 Avoiding the Pitfalls Before the Deal 14 Summary 59
1.8 Determining Price and Method of Payment in Appendix 2A: Deferred Taxes in Business
Business Combinations 16 ­Combinations (Available to Instructors)
1.9 Alternative Concepts of Consolidated Financial Appendix 2B: Illustration 2-1 (Available to Instructors)
Statements 20 Questions 61
1.10 FASB’S Conceptual Framework 25 Analyzing Financial Statements 61
1.11 FASB Codification (Source of GAAP) (Available to Exercises 66
Instructors) ASC Exercises (Available to Instructors)
Summary 31 Problems 73
Appendix 1A: Evaluating Firm Performance
(Available to Instructors)
Questions 32
3 CONSOLIDATED FINANCIAL STATEMENTS—
DATE OF ACQUISITION 77
Analyzing Financial Statements 32
Exercises 35 Learning Objectives 77
ASC Exercises 37 3.1 Definitions of Subsidiary and Control 79
3.2 Requirements for the Inclusion of Subsidiaries in
the ­Consolidated Financial Statements 82
2 ACCOUNTING FOR BUSINESS 3.3 Reasons for Subsidiary Companies 83
COMBINATIONS 38 3.4 Consolidated Financial Statements 83
Learning Objectives 38 3.5 Investments at the Date of Acquisition 84
2.1 Accounting Standards on Business Combinations: 3.6 Consolidated Balance Sheets: The Use of
Background 38 Workpapers 86

viii
Contents ix

3.7 A Comprehensive Illustration—More Than One 5.2 Effect of Differences Between Implied and Book
Subsidiary Company 103 Values on Consolidated Net Income—Year Subse-
3.8 Limitations of Consolidated Statements 106 quent to Acquisition 199
Summary 107 5.3 Consolidated Statements Workpaper—Using the
Appendix 3A: Deferred Taxes on the Date of Acquisi- Cost Method 202
tion (Available to Instructors) 5.4 Controlling and Noncontrolling Interests in
Appendix 3B: Consolidation of Variable Interest Entities ­Consolidated Net Income and Retained Earnings—
(Available to Instructors) Using the Cost Method 213
Questions 108 5.5 Consolidated Statements Workpaper—Using
­Partial Equity Method 215
Analyzing Financial Statements 109
5.6 Controlling and Noncontrolling Interests in
Exercises 110
­Consolidated Net Income and Retained Earnings—
ASC Exercises (Available to Instructors) Using Partial Equity Method 222
Problems 114 5.7 Consolidated Statements Workpaper—Using Com-
plete Equity Method 224
4 CONSOLIDATED FINANCIAL STATEMENTS 5.8 Controlling Interest in Consolidated Net Income
AFTER ACQUISITION 122 and Retained Earnings—Using Complete Equity
Method 232
Learning Objectives 122 5.9 Additional Considerations Relating to Treatment
4.1 Accounting for Investments by the Cost, Partial of Difference Between Implied and Book
Equity, and Complete Equity Methods 123 Values 233
4.2 Consolidated Statements After Acquisition—Cost 5.10 Push down accounting (Available to Instructors)
Method 132 Summary 242
4.3 Recording Investments in Subsidiaries—Equity Questions 243
Method (Partial or Complete) 144
Analyzing Financial Statements 244
4.4 Elimination of Intercompany Revenue and
Exercises 247
Expense Items 155
ASC Exercises (Available to Instructors)
4.5 Interim Acquisitions of Subsidiary Stock 156
Problems 252
4.6 Consolidated Statement of Cash Flows 162
4.7 Illustration of Preparation of a Consolidated
Statement of Cash Flows—Year of Acquisition 166 6 ELIMINATION OF UNREALIZED PROFIT ON
Summary 169 INTERCOMPANY SALES OF INVENTORY 270
Appendix 4A: Alternative Workpaper Format (Available
Learning Objectives 270
to Instructors)
6.1 Effects of Intercompany Sales of Merchandise
Appendix 4B: Deferred Tax Consequences When
on the D ­ etermination of Consolidated
­Affiliates File Separate Income Tax Returns—­
­Balances 271
Undistributed Income (Available to Instructors)
6.2 Cost Method: Consolidated Statements
Questions 170
­Workpaper—Upstream Sales 281
Analyzing Financial Statements 171
6.3 Cost Method—Analysis of Consolidated
Exercises 172 Net Income and C ­ onsolidated Retained
ASC Exercises (Available to Instructors) Earnings 286
Problems 178 6.4 Consolidated Statements Workpaper—Partial
Equity Method 289

5 ALLOCATION AND DEPRECIATION OF

6.5 Partial Equity Method—Analysis of Consolidated
Net Income and Consolidated Retained
DIFFERENCES BETWEEN IMPLIED AND BOOK ­Earnings 294
VALUES 191
6.6 Consolidated Statements Workpaper—Complete
Learning Objectives 191 Equity Method 295
5.1 Computation and Allocation of the Difference 6.7 Complete Equity Method—Analysis of Consoli-
Between Implied and Book Values to Assets and dated Net Income and Consolidated Retained
Liabilities of Subsidiary—Acquisition Date 193 ­Earnings 300
xContents

6.8 Summary of Workpaper Entries Relating to Inter- 9 INTERCOMPANY BOND HOLDINGS AND
company Sales of Inventory 301
MISCELLANEOUS TOPICS—CONSOLIDATED
6.9 Intercompany Profit Prior to Parent-Subsidiary FINANCIAL STATEMENTS 375
Affiliation 301
Summary 302 Learning Objectives 375
Appendix 6A: Deferred Taxes and Intercompany Sales 9.1 Intercompany Bond Holdings 376
of Inventory (Available to Instructors)
Questions 303
10 INSOLVENCY—LIQUIDATION AND
Analyzing Financial Statements 303 REORGANIZATION 378
Exercises 305
Learning Objectives 378
ASC Exercises 308
Problems 308
11 INTERNATIONAL FINANCIAL REPORTING
STANDARDS 380
7 ELIMINATION OF UNREALIZED GAINS
OR LOSSES ON INTERCOMPANY SALES OF Learning Objectives 380
PROPERTY AND EQUIPMENT 321 11.1 The Increasing Importance of International
Accounting Standards 380
Learning Objectives 321 11.2 Historical Perspective 382
7.1 Intercompany Sales of Land (Nondepreciable 11.3 GAAP Hierarchy—U.S. versus IFRS 385
Property) 322
11.4 Similarities and Differences Between U.S. GAAP
7.2 Intercompany Sales of Depreciable Property and IFRS 387
(Machinery, Equipment, and Buildings) 325
11.5 Business Combination and Consolidation—U.S.
7.3 Consolidated Statements Workpaper—Cost and GAAP versus IFRS 396
Partial Equity Methods 332
11.6 International Convergence Issues 414
7.4 Calculation of Consolidated Net Income and
11.7 American Depository Receipts (Available to
Consolidated Retained Earnings 342
Instructors)
7.5 Consolidated Statements Workpaper—Complete
Summary 418
Equity Method 345
Questions 419
7.6 Calculation and Allocation of Consolidated Net
Income; Consolidated Retained Earnings: Analyzing Financial Statements 419
Complete Equity Method 351 Exercises 423
7.7 Summary of Workpaper Entries Relating to ASC Exercises 426
Intercompany Sales of Equipment 352 Problems 426
7.8 Intercompany Interest, Rents, and Service
Fees 352
Summary 355 12 ACCOUNTING FOR FOREIGN CURRENCY
TRANSACTIONS AND HEDGING ­­FOREIGN
Appendix 7A: Deferred Taxes Consequences Related
to Intercompany Sales of Equipment (Available to EXCHANGE RISK 432
Instructors) Learning Objectives 432
Questions 356 12.1 Exchange Rates—Means of Translation 433
Analyzing Financial Statements 357 12.2 Measured versus Denominated 436
Exercises 357 12.3 Foreign Currency Transactions 437
ASC Exercises (Available to Instructors) 12.4 Using Forward Contracts as a
Problems 360 Hedge 446
Summary 464
Questions 465
8 CHANGES IN OWNERSHIP INTEREST 372 Analyzing Financial Statements 465
Learning Objectives 372 Exercises 466
8.1 Changes in Ownership 372 Problems 474
Contents xi

13 TRANSLATION OF FINANCIAL STATEMENTS 15.2 Reasons for Forming a Partnership 553

OF FOREIGN AFFILIATES 481 15.3 Characteristics of a Partnership 554
15.4 Partnership Agreement 556
Learning Objectives 481
15.5 Accounting for a Partnership 558
13.1 Accounting for Operations in Foreign ­
15.6 Special Problems in Allocation of Income and
Countries 482
Loss 566
13.2 Translating Financial Statements of Foreign
15.7 Financial Statement Presentation 568
Affiliates 483
15.8 Changes in the Ownership of the Partnership 569
13.3 Objectives of Translation 484
15.9 Section A: Admission of a New Partner
13.4 Translation Methods 486
(Not a Business Combination) 571
13.5 Identifying the Functional Currency 486
15.10 Section B: Admission of a New Partner that Qual-
13.6 Translation of Foreign Currency Financial ifies as a Business Combination: GAAP Requires
Statements 487 Goodwill Method 579
13.7 Translation of Foreign Financial Statements 15.11 Section C: Withdrawal of a Partner 582
Illustrated 492
Summary 585
13.8 Financial Statement Disclosure 502
Questions 587
Summary 503
Exercises 587
Appendix 13A: Accounting for a Foreign Affiliate and
Problems 594
Preparation of Consolidated Statements Workpaper
Illustrated (Available to Instructors)
Appendix 13B: Preparing the Statement of Cash 16 PARTNERSHIP LIQUIDATION 601
Flows with International Subsidiaries (Available to
Instructors) Learning Objectives 601
Questions 504 16.1 Steps in the Liquidation Process 602
Analyzing Financial Statements 505 16.2 Priorities of Partnership and Personal
­Creditors 604
Exercises 506
16.3 Simple Liquidation Illustrated 606
ASC Exercises 512
16.4 Installment Liquidation 608
Problems 513
16.5 Incorporation of a Partnership 616
Summary 618
14 REPORTING FOR SEGMENTS AND FOR
Questions 619
INTERIM FINANCIAL PERIODS 520
Exercises 619
Learning Objectives 520 Problems 625
14.1 Need for Disaggregated Financial Data 521
14.2 Standards of Financial Accounting and
Reporting 521 17 INTRODUCTION TO FUND
14.3 Interim Financial Reporting 533 ACCOUNTING 632
Summary 539 Learning Objectives 632
Appendix 14A: GE Segmental Disclosures, 2013 Annual 17.1 Classifications of Nonbusiness
Report (Available to Instructors) Organizations 633
Questions 540 17.2 Distinctions Between Nonbusiness Organizations
Analyzing Financial Statements 541 and Profit-Oriented Enterprises 633
Exercises 543 17.3 Financial Accounting and Reporting Standards
Problems 547 for Nonbusiness Organizations 634
17.4 Fund Accounting 638
17.5 Comprehensive Illustration—General
15 PARTNERSHIPS: FORMATION, OPERATION, Fund 656
AND OWNERSHIP CHANGES 551
17.6 Reporting Inventory and Prepayments in the
Learning Objectives 551 Financial Statements 665
15.1 Partnership Defined 553 Summary 667
xiiContents

Appendix 17A: City of Atlanta Partial Financial State- 19 ACCOUNTING FOR NONGOVERNMENT
ments (Available to Instructors)
NONBUSINESS ORGANIZATIONS: COLLEGES
Questions 668 AND UNIVERSITIES, HOSPITALS AND OTHER
Analyzing Financial Statements 668 HEALTH CARE ORGANIZATIONS 749
Exercises 669
Learning Objectives 749
Problems 674
19.1 Sources of Generally Accepted Accounting
Standards for Nongovernment Nonbusiness
18 INTRODUCTION TO ACCOUNTING
Organizations 750
FOR STATE AND LOCAL GOVERNMENTAL 19.2 Financial Reporting for Not-for-Profit
Entities 752
UNITS 682
19.3 Fund Accounting and Accrual Accounting 756
Learning Objectives 682 19.4 Contributions 757
18.1 The History of Generally Accepted Governmental 19.5 Accounting for Current Funds 763
Accounting Standards 684
19.6 Accounting for Plant Funds 766
18.2 The Structure of Governmental Accounting 686
19.7 Accounting for Endowment Funds 771
18.3 Governmental Fund Entities 688
19.8 Accounting for Investments 772
18.4 Proprietary Funds 707
19.9 Accounting for Loan Funds 774
18.5 Fiduciary Funds 711
19.10 Accounting for Agency (Custodial) Funds 774
18.6 Capital Assets and Long-Term Debt 711
19.11 Accounting for Annuity and Life Income Funds 775
18.7 External Reporting Requirements (GASB
19.12 Issues Relating to Colleges and Universities 776
­Statement No. 34) 716
Summary 777
18.8 Government Fund-Based Reporting 717
Questions 778
18.9 Government-Wide Reporting 721
Appendix 19A: Sample Financial Statements for Private
18.10 Management’s Discussion and Analysis (MD&A)
Educational Institutions (Available to Instructors)
(Available to Instructors)
Analyzing Financial Statements 779
18.11 Interfund Activity (Available to Instructors)
Exercises 779
Summary 725
Problems 787
Appendix 18A: Government-wide Financial
­Statements—City of Atlanta (Available to Instructors)
Glossary 796
Questions 727
Analyzing Financial Statements 728 Appendix PV: Tables of Present Values (Available
Exercises 729 to Instructors)
Problems 737 Index 803
 1
INTRODUCTION TO BUSINESS
COMBINATIONS AND THE
CONCEPTUAL FRAMEWORK
CHAPTER CONTENTS LEARNING OBJECTIVES
1.1 GROWTH THROUGH MERGERS 1 Describe historical trends in types of business
1.2 NATURE OF THE COMBINATION combinations.
2 Identify the major reasons firms combine.
1.3 BUSINESS COMBINATIONS: WHY? WHY NOT?
3 Identify the factors that managers should consider in
1.4 BUSINESS COMBINATIONS: HISTORICAL exercising due diligence in business combinations.
­PERSPECTIVE
4 Identify defensive tactics used to attempt to block
1.5 TERMINOLOGY AND TYPES OF COMBINATIONS business combinations.
1.6 TAKEOVER PREMIUMS 5 Distinguish between an asset and a stock acquisition.
6 Indicate the factors used to determine the price and
1.7 AVOIDING THE PITFALLS BEFORE THE DEAL
the method of payment for a business combination.
1.8 DETERMINING PRICE AND METHOD OF PAYMENT 7 Calculate an estimate of the value of goodwill to be
IN BUSINESS COMBINATIONS included in an offering price by discounting expected
1.9  LTERNATIVE CONCEPTS OF CONSOLIDATED
A future excess earnings over some period of years.
­FINANCIAL STATEMENTS 8 Describe the two alternative views of consolidated
financial statements: the economic entity and the
1.10 FASB’S CONCEPTUAL FRAMEWORK
­parent company concepts.
1.11 FASB CODIFICATION (SOURCE OF GAAP) 9 Discuss the Statements of Financial Accounting
­Concepts (SFAC).

1.1 GROWTH THROUGH MERGERS

Growth through mergers and acquisitions (M&A) has become a standard in business
not only in America but throughout the world. The total volume of 2017 deal-making
reached $3.5 trillion, increasing the record streak to four consecutive years in which deals
surpassed $3 trillion in volume. In 2017, the United States remained the most active
region conducting 12,400 deals, an all-time U.S. record. U.S. deals totaled $1.4 trillion,
falling 16% from 2016. Dealmakers expect an M&A surge in 2018 as a result of President
Trump’s corporate tax reform.

1
2 Chapter 1 Introduction to Business Combinations and the Conceptual Framework

The total volume of Asia Pacific deals reached $912 billion in 2017, up 11%
from 2016. Chinese companies committed $140 billion to outbound deals in 2017,
down 35% from 2016 but still China’s second biggest year on record. A new capital
controls regime in China, coupled with increased scrutiny of tech deals from U.S. and
European governments, limited outbound deals.1 In the new millennium, the most
recent in a series of booms in merger activity was sparked by cheaper credit and by
global competition, in addition to the usual growth-related incentives predominant
during the boom of the 1990s.
Merger activity has historically been highly correlated with the movement of the
stock market. Increased stock valuation increases a firm’s ability to use its shares to
acquire other companies and is often more appealing than issuing debt. During the
merger cycle of the 1990s, equity values fueled the merger wave. The slowing of
merger activity in the early years of the 21st century provided a dramatic contrast to
this preceding period. Beginning with the merger of Morgan Stanley and Dean Witter
Discover and ending with the biggest acquisition to that date—WorldCom’s bid for
MCI—the year 1997 marked the third consecutive year of record M&A activity. The
pace accelerated still further in 1998 with unprecedented merger activity in the banking
industry, the auto industry, financial services, and telecommunications, among others.
This activity left experts wondering why and whether bigger was truly better. It also
left consumers asking what the impact would be on service. A wave of stock swaps
was undoubtedly sparked by record highs in the stock market, and stockholders reaped
benefits from the mergers in many cases, at least in the short run. Regulators voiced
concern about the dampening of competition, and consumers were quick to wonder
where the real benefits lay. Following the accounting scandals of 2001 (WorldCom,
Enron, Tyco, etc.), merger activity lulled for a few years.
Also in 2001, the Financial Accounting Standards Board (FASB) voted in two
major accounting changes related to business combinations. The first met with vehe-
ment protests that economic activity would be further slowed as a result and the sec-
ond with excitement that it might instead be spurred. Both changes are detailed in
Chapter 2.
By the middle of 2002, however, these hopes had been temporarily quelled. Instead
of increased earnings, many firms active in mergers during the 1990s were forced to
report large charges related to the diminished value of long-lived assets (mainly good-
will). Merger activity slumped, suggesting that the frenzy had run its course. Market
reaction to the mergers that did occur during this period typified the market’s doubts.
When Northrop Grumman Corp. announced the acquisition of TRW Inc. for $7.8 bil-
lion, the deal was praised but no market reaction was noted. In contrast, when Vivendi
Universal admitted merger-gone-wrong woes, investors scurried.
By the middle of the first decade of the 21st century, however, the frenzy was
returning with steady growth in merger activity from 2003 to 2006. In 2005, almost
18% of all M&A (mergers & acquisitions) deals were in the services sector. In a one-
week period in June of 2006, $100 billion of acquisitions occurred, including Phelps
Dodge’s $35.4 billion acquisition of Inco Ltd. and Falconbridge Ltd. In addition,
because of the economic rise in China and India, companies there were looking to
increase their global foothold and began acquiring European companies. Thus, cross-
border deals within Europe accounted for a third of the global M&A deals.
However, by the end of 2008, a decline in overall merger activity was apparent
as the U.S. economy slid into a recession, and some forecasters were predicting the

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Growth Through Mergers 3

next chapter in M&A to center around bankruptcy-related activity. Data from Thom-
son Reuters revealed that in 2008, bankruptcy-related merger activity increased for
the first time in the last six years. For example, the number of Chapter 11 M&A
purchases rose from 136 for the entire year of 2007 to 167 for the first 10 months of
2008, with more to come. Overall mergers, on the other hand, decreased from $87
billion in the United States ($277 billion globally) during October 2007 to $78 bil-
lion in the United States ($259 billion globally) during October 2008, based on the
Reuters data.
“If we are
On December 4, 2007, FASB released two new standards, FASB Statement No.
going to ride 141 R, Business Combinations, and FASB Statement No. 160, Noncontrolling Interests
IN
the IASB and in Consolidated Financial Statements [ASC 805, “Business Combinations” and ASC
THE
NEWS the IFRS 810, “Consolidations,” based on FASB’s new codification system]. These standards have
[International altered the accounting for business combinations dramatically.
Financial Both statements became effective for years beginning after December 15, 2008,
Reporting Standards] horse, we and are intended to improve the relevance, comparability, and transparency of financial
want to make sure that it’s as information related to business combinations, and to facilitate the convergence with
good as it can be. We want to international standards. They represent the completion of the first major joint project
make sure that the IASB is
of the FASB and the IASB (International Accounting Standards Board), according to
strong, is independent, is well
one FASB member, G. Michael Crooch. The FASB also believes the new standards
resourced, and is properly
funded in a broad-based and
will reduce the complexity of accounting for business combinations. These standards
secure way.”2 are integrated throughout this text.

Planning M&A in a Changing Environment and Under

Changing Accounting Requirements
In 2017, 86% 1. The timing of deals is critical. The number of days between agreement or
of private announcement and deal consummation can make a huge difference.
IN
THE equity 2. The effects on reporting may cause surprises. More purchases qualify as business
NEWS investors combinations than previously. Income tax provisions can trigger disclosures.
anticipate an
3. Assembling the needed skill and establishing the needed controls takes time. The
uptick in
use of fair values is expanded, and more items will need remeasurement or mon-
M&A activity. Divestitures may
be a major focus in 2017. itoring after the deal.
4. The impact on earnings in the year of acquisition and subsequent years will differ
from that in past mergers, as will the effects on earnings of step purchases or sales.
5. Unforeseen effects on debt covenants or other legal arrangements may be lurking
in the background, as a result of the changes in key financial ratios.3

Growth is a major objective of many business organizations. Top management

often lists growth or expansion as one of its primary goals. A company may grow
slowly, gradually expanding its product lines, facilities, or services, or it may sky-
rocket almost overnight. Some managers consider growth so important that they say
their companies must “grow or die.” In the past hundred years, many U.S. businesses
have achieved their goal of expansion through business combinations. A business
combination occurs when the operations of two or more companies are brought under
common control.

2
“Change Agent: Robert Hertz discusses FASB’s priorities, the road to convergence and changes ahead for
CPAs,” Journal of Accountancy, February 2008, p. 31.
3
BDO Seidman, LLP, “Client Advisory,” No. 2008-1, 1/31/08.
 4 Chapter 1 Introduction to Business Combinations and the Conceptual Framework

1.2 NATURE OF THE COMBINATION

A business combination may be friendly or unfriendly. In a friendly combination, the
boards of directors of the potential combining companies negotiate mutually agreeable
terms of a proposed combination. The proposal is then submitted to the stockholders of
the involved companies for approval. Normally, a two-thirds or three-fourths positive vote
is required by corporate bylaws to bind all stockholders to the combination.
An unfriendly (hostile) combination results when the board of directors of
a company targeted for acquisition resists the combination. A formal tender offer
enables the acquiring firm to deal directly with individual shareholders. The tender
offer, usually published in a newspaper, typically provides a price higher than the
Men’s current market price for shares made available by a certain date. If a sufficient number
Wearhouse of shares are not made available, the acquiring firm may reserve the right to with-
IN
THE acquired all draw the offer. Because they are relatively quick and easily executed (often in about a
NEWS the out- month), tender offers are the preferred means of acquiring public companies.
standing Although tender offers are the preferred method for presenting hostile bids, most
shares of Jos. tender offers are friendly ones, done with the support of the target company’s management.
A Bank with a per share offer Nonetheless, hostile takeovers have become sufficiently common that a number of mech-
that represented a 56%
anisms have emerged to resist takeover.
premium over Jos. A. Bank’s
closing share price. During a
six-month period, Jos. A. Bank Defense Tactics
made several offers to acquire
Men’s Wearhouse. At the end Resistance often involves various moves by the target company, generally with colorful
of this six-month period, Men’s terms. Whether such defenses are ultimately beneficial to shareholders remains a contro-
Wearhouse, using a Pac Man versial issue. Academic research examining the price reaction to defensive actions has
strategy, made an offer to produced mixed results, suggesting that the defenses are good for stockholders in some
acquire Jos. A Bank. No cases and bad in others. For example, when the defensive moves result in the bidder (or
rebranding of the companies is another bidder) offering an amount higher than initially offered, the stockholders benefit.
expected and Men’s Wear- But when an offer of $40 a share is avoided and the target firm remains independent with
house shareholders hope to
a price of $30, there is less evidence that the shareholders have benefited.
benefit from $100 to $150
A certain amount of controversy surrounds the effectiveness, as well as the ulti-
million in synergies.4
mate benefits, of the following defensive moves:

1. Poison pill: Issuing stock rights to existing shareholders enabling them to pur-
chase additional shares at a price below market value, but exercisable only in the
LO 4 Defensive tactics are used. event of a potential takeover. This tactic has been effective in some instances, but
bidders may take managers to court and eliminate the defense. In other instances,
the original shareholders benefit from the tactic. Chrysler Corp. announced that
it was extending a poison pill plan until February 23, 2008, under which the
rights become exercisable if anyone announces a tender offer for 15% or more, or
acquires 15%, of Chrysler’s outstanding common shares. Poison pills are rarely
triggered, but their existence serves as a preventative measure.
2. Greenmail: The purchase of any shares held by the would-be acquiring company
at a price substantially in excess of their fair value. The purchased shares are then
held as treasury stock or retired. This tactic is largely ineffective because it may
result in an expensive excise tax; further, from an accounting perspective, the
excess of the price paid over the market price is expensed.

4
“Men’s Wearhouse Reaches $1.8 Billion Deal to Acquire Jos. A. Bank,” by Maggie McGrath, Forbes.
com, 3/11/14.
 Business Combinations: Why? Why Not? 5

3. White knight or white squire: Encouraging a third firm more acceptable to the
target company management to acquire or merge with the target company.
4. Pac-man defense: Attempting an unfriendly takeover of the would-be
acquiring company.
5. Selling the crown jewels: The sale of valuable assets to others to make the firm
less attractive to the would-be acquirer. The negative aspect is that the firm, if it
survives, is left without some important assets.
6. Leveraged buyouts: The purchase of a controlling interest in the target firm by its
managers and third-party investors, who usually incur substantial debt in the pro-
cess and subsequently take the firm private. The bonds issued often take the form
of high-interest, high-risk “junk” bonds. Leveraged buyouts will be discussed in
more detail in Chapter 2.

1.3 BUSINESS COMBINATIONS: WHY? WHY NOT?

LO 2 Reasons firms combine. A company may expand in several ways. Some firms concentrate on internal expan-
sion. A firm may expand internally by engaging in product research and development.
Hewlett-Packard is an example of a company that relied for many years on new product
development to maintain and expand its market share. A firm may choose instead to
emphasize marketing and promotional activities to obtain a greater share of a given
market. Although such efforts usually do not expand the total market, they may redis-
tribute that market by increasing the company’s share of it.
For other firms, external expansion is the goal; that is, they try to expand by
acquiring one or more other firms. This form of expansion, aimed at producing
relatively rapid growth, has exploded in frequency and magnitude in recent years. A
company may achieve significant cost savings as a result of external expansion, per-
haps by acquiring one of its major suppliers.
In addition to rapid expansion, the business combination method, or external expan-
Views on
sion, has several other potential advantages over internal expansion:
IN whether
synergies are
THE 1. Operating synergies may take a variety of forms. Whether the merger is vertical
real or simply
NEWS (a merger between a supplier and a customer) or horizontal (a merger between
a plug figure
to justify a
competitors), combination with an existing company provides management of the
merger that shouldn’t happen acquiring company with an established operating unit with its own experienced
are diverse. Time Warner, for personnel, regular suppliers, productive facilities, and distribution channels. In the
example, has fluctuated back case of vertical mergers, synergies may result from the elimination of certain costs
and forth on this issue in recent related to negotiation, bargaining, and coordination between the parties. In the
years. President Jeffrey Bewkes case of a horizontal merger, potential synergies include the combination of sales
recently was quoted as saying, forces, facilities, outlets, and so on, and the elimination of unnecessary duplica-
“No division should subsidize tion in costs. When a private company is acquired, a plus may be the potential to
another.” When queried about eliminate not only duplication in costs but also unnecessary costs.
the message his predecessors
Management of the acquiring company can draw upon the operating history
sent to shareholders, he said,
and the related historical database of the acquired company for planning pur-
“It’s bull—”5
poses. A history of profitable operations by the acquired company may, of course,
greatly reduce the risk involved in the new undertaking. A careful examination of

5
WSJ, “After Years of Pushing Synergy, Time Warner Inc. Says Enough,” by Matthew Karnitschnig,
6/2/06, p. A1.
6 Chapter 1 Introduction to Business Combinations and the Conceptual Framework

GAINS FROM BULKING UP6

Industry Key Benefit of Consolidation

Antenna towers Frees up capital and management time for wireless communica-
tions operators
Funeral homes Yields greater discounts on coffins, supplies, and equipment
Health clubs Spreads regional marketing and advertising costs over more
facilities
Landfill sites Lets operators cope with the new environmental and
regulatory demands
Physician group practices Reduces overhead and costs of medical procedures

the acquired company’s expenses may reveal both expected and unexpected costs
that can be eliminated. On the more negative (or cautious) side, be aware that the
term “synergies” is sometimes used loosely. If there are truly expenses that can
be eliminated, services that can be combined, and excess capacity that can be
reduced, the merger is more likely to prove successful than if it is based on growth
and “so-called synergies,” suggests Michael Jensen, a professor of finance at the
Harvard Business School.
2. Combination may enable a company to compete more effectively in the interna-
tional marketplace. For example, an acquiring firm may diversify its operations
rather rapidly by entering new markets; alternatively, it may need to ensure its
sources of supply or market outlets. Entry into new markets may also be under-
Having
taken to obtain cost savings realized by smoothing cyclical operations. Diminishing
IN incurred
savings from cost-cutting within individual companies makes combination more
THE heavy losses
over the last
appealing. The financial crisis in Asia accelerated the pace for a time as American
NEWS
several and European multinationals competed for a shrinking Asian market. However, a
decades, the combination of growing competition, globalization, deregulation, and financial
U.S. airline industry is often engineering has led to increasingly complex companies and elusive profits.
considered a laggard by 3. Business combinations are sometimes entered into to take advantage of income
investors. Consequently, a tax laws. The opportunity to file a consolidated tax return may allow profitable
number of airlines were corporations’ tax liabilities to be reduced by the losses of unprofitable affiliates.
pushed into bankruptcy post
When an acquisition is financed using debt, the interest payments are tax deduct-
the slowdown, resulting in a
ible, creating a financial synergy or “tax gain.” Many combinations in the past
number of M&A over the last
decade. These mergers
were planned to obtain the advantage of significant operating loss carryforwards
resulted in the consolidation of that could be utilized by the acquiring company. However, the Tax Reform Act
capacity with the top four U.S. of 1986 limited the use of operating loss carryforwards in merged companies.
airlines in the industry, namely Because tax laws vary from year to year and from country to country, it is diffi-
American, United, Delta, and cult to do justice to the importance of tax effects within the scope of this chapter.
Southwest Airlines. At present, Nonetheless, it is important to note that tax implications are often a driving force
these airlines hold almost 85% in merger decisions.
of the market share, as
4. Diversification resulting from a merger offers a number of advantages, including
opposed to only 65% share (on
increased flexibility, an internal capital market, an increase in the firm’s debt
average) held by the top four
capacity, more protection from competitors over proprietary information, and,
U.S. airlines in the past.7
sometimes, a more effective utilization of the organization’s resources. In debating

6
Business Week, “Buy ’Em Out, Then Build ’Em Up,” by Eric Schine, 5/18/95, p. 84.
7
Forbes, “How M&A Has Driven the Consolidation of the US Airline Industry over the Last Decade? 5/4/16.
 Business Combinations: Historical Perspective 7

the tradeoffs between diversification and focusing on one (or a few) specialties,
there are no obvious answers.
5. Divestitures accounted for 40% of global merger activity in 2014, which has
increased from 30% in the period from 2001 to 2010. Shedding divisions that are
not part of a company’s core business became common during this period. In some
cases, the divestitures may be viewed as “undoing” or “redoing” past acquisitions.
A popular alternative to selling off a division is to “spin off” a unit. Examples
include AT&T’s spin-off of its equipment business to form Lucent Technologies
Inc., Sears Roebuck’s spin-off of Allstate Corp. and Dean Witter Discover & Co.,
and Cincinnati Bell’s proposed spin-off of its billing and customer-management
businesses to form Convergys Corp.

Notwithstanding its apparent advantages, business combination may not always

be the best means of expansion. An overriding emphasis on rapid growth may
result in the pyramiding of one company on another without sufficient management
­control over the resulting conglomerate. Too often in such cases, management fails
to maintain a sound enough financial equity base to sustain the company during
periods of recession. Unsuccessful or incompatible combinations may lead to future
divestitures.
In order to avoid large dilutions of equity, some companies have relied on the
use of various debt and preferred stock instruments to finance expansion, only to find
themselves unable to provide the required debt service during a period of decreasing
economic activity. The junk bond market used to finance many of the mergers in the
1980s had essentially collapsed by the end of that decade.
Business combinations may destroy, rather than create, value in some instances.
For example, if the merged firm’s managers transfer resources to subsidize money-
losing segments instead of shutting them down, the result will be a suboptimal alloca-
tion of capital. This situation may arise because of reluctance to eliminate jobs or to
acknowledge a past mistake.
Some critics of the accounting methods used in the United States prior to 2002 to
account for business combinations argued that one of the methods did not hold execu-
tives accountable for their actions if the price they paid was too high, thus encouraging
firms to “pay too much.” Although opinions are divided over the relative merits of the
accounting alternatives, most will agree that the resulting financial statements should
reflect the economics of the business combination. Furthermore, if and when the
accounting standards and the resulting statements fail even partially at this objective,
it is crucial that the users of financial data be able to identify the deficiencies. Thus
we urge the reader to keep in mind that an important reason for learning and under-
standing the details of accounting for business combinations is to understand the eco-
nomics of the business combination, which in turn requires understanding any possible
deficiencies in the accounting presentation.

1.4 BUSINESS COMBINATIONS: HISTORICAL PERSPECTIVE

LO 1 Historical trends in types of In the United States there have been three fairly distinct periods characterized by many
M&A. business mergers, consolidations, and other forms of combinations: 1880–1904, 1905–
1930, and 1945–present. During the first period, huge holding companies, or trusts,
were created by investment bankers seeking to establish monopoly control over certain
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settled by the Turkish Government a few years earlier in the vicinity
of Gerasa and Rabbath-Ammon. The colonists had built their houses
from the numerous ruins of these cities, but at Rabbath-Ammon they
said their great difficulty had been about timber. And we could well
understand how the Beduin, who resented the settlement of
Circassians on lands they had used for ages, and with whom the
Circassians were nearly always at variance,[610] did what they could
to make the carriage of timber impossible. Similarly with the Jews
and their Samaritan adversaries. The site might be cleared and the
stone of the Temple laid, but if the timber was stopped there was
little use in raising the walls, and the Jews, further discouraged by
the failure of their impetuous hopes of what the Return would bring
them, found cause for desisting from their efforts. Bad seasons
followed, the labours for their own sustenance exhausted their
strength, and in the sordid toil their hearts grew hard to higher
interests. Cyrus died in 529, and his legate Sheshbazzar, having
done nothing but lay the stone, appears to have left Judæa.[611]
Cambyses marched more than once through Palestine, and his army
garrisoned Gaza, but he was not a monarch to have any
consideration for Jewish ambitions. Therefore—although Samaritan
opposition ceased on the stoppage of the Temple works and the
Jews procured timber enough for their private dwellings[612]—is it
wonderful that the site of the Temple should be neglected and the
stone laid by Sheshbazzar forgotten, or that the disappointed Jews
should seek to explain the disillusions of the Return, by arguing that
God’s time for the restoration of His house had not yet come?
The death of a cruel monarch is always in the East an occasion
for the revival of shattered hopes, and the events which
accompanied the suicide of Cambyses in 522 were particularly
fraught with the possibilities of political change. Cambyses’ throne
had been usurped by one Gaumata, who pretended to be Smerdis or
Barada, a son of Cyrus. In a few months Gaumata was slain by a
conspiracy of seven Persian nobles, of whom Darius, the son of
Hystaspes, both by virtue of his royal descent and by his own great
ability, was raised to the throne in 521. The empire had been too
profoundly shocked by the revolt of Gaumata to settle at once under
the new king, and Darius found himself engaged by insurrections in
all his provinces except Syria and Asia Minor.[613] The colonists in
Jerusalem, like all their Syrian neighbours, remained loyal to the new
king; so loyal that their Peḥah or Satrap was allowed to be one of
themselves—Zerubbabel, son of She’altî’el,[614] a son of their royal
house. Yet though they were quiet, the nations were rising against
each other and the world was shaken. It was just such a crisis as
had often before in Israel rewakened prophecy. Nor did it fail now;
and when prophecy was roused what duty lay more clamant for its
inspiration than the duty of building the Temple?
We are in touch with the first of our post-exilic prophets, Haggai
and Zechariah.
 HAGGAI

Go up into the mountain, and fetch wood, and

build the House.
 CHAPTER XVII

THE BOOK OF HAGGAI

The Book of Haggai contains thirty-eight verses, which have been

divided between two chapters.[615] The text is, for the prophets, a
comparatively sound one. The Greek version affords a number of
corrections, but has also the usual amount of misunderstandings,
and, as in the case of other prophets, a few additions to the Hebrew
text.[616] These and the variations in the other ancient versions will
be noted in the translation below.[617]
The book consists of four sections, each recounting a message
from Jehovah to the Jews in Jerusalem in 520 B.C., the second year
of Darius (Hystaspis), by the hand of the prophet Haggai.
The first, chap. i., dated the first day of the sixth month, during
our September, reproves the Jews for building their own cieled
houses, while they say that the time for building Jehovah’s house
has not yet come; affirms that this is the reason of their poverty and
of a great drought which has afflicted them. A piece of narrative is
added recounting how Zerubbabel and Jeshua, the heads of the
community, were stirred by this word to lead the people to begin
work on the Temple, on the twenty-fourth day of the same month.
The second section, chap. ii. 1–9, contains a message, dated the
twenty-first day of the seventh month, during our October, in which
the builders are encouraged for their work. Jehovah is about to
shake all nations, these shall contribute of their wealth, and the
latter glory of the Temple be greater than the former.
The third section, chap. ii. 10–19, contains a word of Jehovah
which came to Haggai on the twenty-fourth day of the ninth month,
during our December. It is in the form of a parable based on certain
ceremonial laws, according to which the touch of a holy thing does
not sanctify so much as the touch of an unholy pollutes. Thus is the
people polluted, and thus every work of their hands. Their sacrifices
avail nought, and adversity has persisted: small increase of fruits,
blasting, mildew and hail. But from this day God will bless.
The fourth section, chap. ii. 20–23, is a second word from the
Lord to Haggai on the twenty-fourth day of the ninth month. It is for
Zerubbabel, and declares that God will overthrow the thrones of
kingdoms and destroy the forces of many of the Gentiles by war. In
that day Zerubbabel, the Lord’s elect servant, shall be as a signet to
the Lord.
The authenticity of all these four sections was doubted by no
one,[618] till ten years ago W. Böhme, besides pointing out some
useless repetitions of single words and phrases, cast suspicion on
chap. i. 13, and questioned the whole of the fourth section, chap. ii.
20–23.[619] With regard to chap. i. 13, it is indeed curious that
Haggai should be described as the messenger of Jehovah; while the
message itself, I am with you, seems superfluous here, and if the
verse be omitted, ver. 14 runs on naturally to ver. 12.[620] Böhme’s
reasons for disputing the authenticity of chap. ii. 20–23 are much
less sufficient. He thinks he sees the hand of an editor in the phrase
for a second time in ver. 20; notes the omission of the title
“prophet”[621] after Haggai’s name, and the difference of the formula
the word came to Haggai from that employed in the previous
sections, by the hand of Haggai, and the repetition of ver. 6b in
ver. 21; and otherwise concludes that the section is an insertion from
a later hand. But the formula the word came to Haggai occurs also
in ii. 10:[622] the other points are trivial, and while it was most
natural for Haggai the contemporary of Zerubbabel to entertain of
the latter such hopes as the passage expresses, it is inconceivable
that a later writer, who knew how they had not been fulfilled in
Zerubbabel, should have invented them.[623]
Recently M. Tony Andrée, privat-docent in the University of
Geneva, has issued a large work on Haggai,[624] in which he has
sought to prove that the third section of the book, chap. ii. (10) 11–
19, is from the hand of another writer than the rest. He admits[625]
that in neither form, nor style, nor language is there anything to
prove this distinction, and that the ideas of all the sections suit
perfectly the condition of the Jews in the time soon after the Return.
But he considers that chap. ii. (10) 11–19 interrupts the connection
between the sections upon either side of it; that the author is a
legalist or casuist, while the author of the other sections is a man
whose only ecclesiastical interest is the rebuilding of the Temple;
that there are obvious contradictions between chap. ii. (10) 11–19
and the rest of the book; and that there is a difference of
vocabulary. Let us consider each of these reasons.
The first, that chap. ii. (10) 11–19 interrupts the connection
between the sections on either side of it, is true only in so far as it
has a different subject from that which the latter have more or less
in common. But the second of the latter, chap. ii. 20–23, treats only
of a corollary of the first, chap. ii. 1–9, and that corollary may well
have formed the subject of a separate oracle. Besides, as we shall
see, chap. ii. 10–19 is a natural development of chap. i.[626] The
contradictions alleged by M. Andrée are two. He points out that
while chap. i. speaks only of a drought,[627] chap. ii. (10) 11–19
mentions[628] as the plagues on the crops shiddāphôn and yērākôn,
generally rendered blasting and mildew in our English Bible, and
bārād, or hail; and these he reckons to be plagues due not to
drought but to excessive moisture. But shiddāphôn and yērākôn,
which are always connected in the Old Testament and are words of
doubtful meaning, are not referred to damp in any of the passages
in which they occur, but, on the contrary, appear to be the
consequences of drought.[629] The other contradiction alleged refers
to the ambiguous verse ii. 18, on which we have already seen it
difficult to base any conclusion, and which will be treated when we
come to it in the course of translation.[630] Finally, the differences in
language which M. Andrée cites are largely imaginary, and it is hard
to understand how a responsible critic has come to cite, far more to
emphasise them, as he has done. We may relegate the discussion of
them to a note,[631] and need here only remark that there is among
them but one of any significance: while the rest of the book calls the
Temple the House or the House of Jehovah (or of Jehovah of Hosts),
chap. ii. (10) 11–19 styles it palace, or temple, of Jehovah.[632] On
such a difference between two comparatively brief passages it would
be unreasonable to decide for a distinction of authorship.
There is, therefore, no reason to disagree with the consensus of
all other critics in the integrity of the Book of Haggai. The four
sections are either from himself or from a contemporary of his. They
probably represent,[633] not the full addresses given by him on the
occasions stated, but abstracts or summaries of these. “It is never
an easy task to persuade a whole population to make pecuniary
sacrifices, or to postpone private to public interests; and the
probability is, that in these brief remains of the prophet Haggai we
have but one or two specimens of a ceaseless diligence and
persistent determination, which upheld and animated the whole
people till the work was accomplished.”[634] At the same time it must
be noticed that the style of the book is not wholly of the bare, jejune
prose which it is sometimes described to be. The passages of
Haggai’s own exhortation are in the well-known parallel rhythm of
prophetic discourse: see especially chap. i., ver. 6.
The only other matter of Introduction to the prophet Haggai is
his name. The precise form[635] is not elsewhere found in the Old
Testament; but one of the clans of the tribe of Gad is called Haggi,
[636]
and the letters H G I occur as the consonants of a name on a
Phœnician inscription.[637] Some[638] have taken Haggai to be a
contraction of Haggiyah, the name of a Levitical family,[639] but
although the final yod of some proper names stands for Jehovah, we
cannot certainly conclude that it is so in this case. Others[640] see in
Haggai a probable contraction for Hagariah,[641] as Zaccai, the
original of Zacchæus, is a contraction of Zechariah.[642] A more
general opinion[643] takes the termination as adjectival,[644] and the
root to be “hag,” feast or festival.[645] In that case Haggai would
mean festal, and it has been supposed that the name would be
given to him from his birth on the day of some feast. It is impossible
to decide with certainty among these alternatives. M. Andrée,[646]
who accepts the meaning festal, ventures the hypothesis that, like
“Malachi,” Haggai is a symbolic title given by a later hand to the
anonymous writer of the book, because of the coincidence of his
various prophecies with solemn festivals.[647] But the name is too
often and too naturally introduced into the book to present any
analogy to that of “Malachi”; and the hypothesis may be dismissed
as improbable and unnatural.
Nothing more is known of Haggai than his name and the facts
given in his book. But as with the other prophets whom we have
treated, so with this one, Jewish and Christian legends have been
very busy. Other functions have been ascribed to him; a sketch of
his biography has been invented. According to the Rabbis he was
one of the men of the Great Synagogue, and with Zechariah and
“Malachi” transmitted to that mythical body the tradition of the older
prophets.[648] He was the author of several ceremonial regulations,
and with Zechariah and “Malachi” introduced into the alphabet the
terminal forms of the five elongated letters.[649] The Christian
Fathers narrate that he was of the tribe of Levi,[650] that with
Zechariah he prophesied in exile of the Return,[651] and was still
young when he arrived in Jerusalem,[652] where he died and was
buried. A strange legend, founded on the doubtful verse which styles
him the messenger of Jehovah, gave out that Haggai, as well as for
similar reasons “Malachi” and John the Baptist, were not men, but
angels in human shape.[653] With Zechariah Haggai appears on the
titles of Psalms cxxxvii., cxlv.-cxlviii. in the Septuagint; cxi., cxlv.,
cxlvi. in the Vulgate; and cxxv., cxxvi. and cxlv.-cxlviii. in the Peshitto.
[654]“In the Temple at Jerusalem he was the first who chanted the
Hallelujah, ... wherefore we say: Hallelujah, which is the hymn of
Haggai and Zechariah.”[655] All these testimonies are, of course,
devoid of value.
Finally, the modern inference from chap. ii. 3, that Haggai in his
youth had seen the former Temple, had gone into exile, and was
now returned a very old man,[656] may be probable, but is not
certain. We are quite ignorant of his age at the time the word of
Jehovah came to him.
 CHAPTER XVIII

HAGGAI AND THE BUILDING OF THE TEMPLE

HAGGAI i., ii.

We have seen that the most probable solution of the problems

presented to us by the inadequate and confused records of the time
is that a considerable number of Jewish exiles returned from
Jerusalem to Babylon about 537, upon the permission of Cyrus, and
that the Satrap whom he sent with them not only allowed them to
raise the altar on its ancient site, but himself laid for them the
foundation-stone of the Temple.[657]
We have seen, too, why this attempt led to nothing, and we have
followed the Samaritan obstructions, the failure of the Persian
patronage, the drought and bad harvests, and all the disillusion of
the fifteen years which succeeded the Return.[658] The hostility of
the Samaritans was entirely due to the refusal of the Jews to give
them a share in the construction of the Temple, and its virulence,
probably shown by preventing the Jews from procuring timber,
seems to have ceased when the Temple works were stopped. At
least we find no mention of it in our prophets; and the Jews are
furnished with enough of timber to panel and ciel their own houses.
[659] But the Jews must have feared a renewal of Samaritan attacks
if they resumed work on the Temple, and for the rest they were too
sodden with adversity, and too weighted with the care of their own
sustenance, to spring at higher interests. What immediately
precedes our prophets is a miserable story of barren seasons and
little income, money leaking fast away, and every man’s sordid heart
engrossed with his own household. Little wonder that critics have
been led to deny the great Return of sixteen years back, with its
grand ambitions for the Temple and glorious future of Israel. But the
like collapse has often been experienced in history when bands of
religious men, going forth, as they thought, to freedom and the
immediate erection of a holy commonwealth, have found their unity
wrecked and their enthusiasm dissipated by a few inclement seasons
on a barren and a hostile shore. Nature and their barbarous fellow-
men have frustrated what God had promised. Themselves,
accustomed from a high stage of civilisation to plan still higher social
structures, are suddenly reduced to the primitive necessities of
tillage and defence against a savage foe. Statesmen, poets and
idealists of sorts have to hoe the ground, quarry stones and stay up
of nights to watch as sentinels. Destitute of the comforts and
resources with which they have grown up, they live in constant
battle with their bare and unsympathetic environs. It is a familiar
tale in history, and we read it with ease in the case of Israel. The
Jews enjoyed this advantage, that they came not to a strange land,
but to one crowded with inspiring memories, and they had behind
them the most glorious impetus of prophecy which ever sent a
people forward to the future. Yet the very ardours of this hurried
them past a due appreciation of the difficulties they would have to
encounter, and when they found themselves on the stony soil of
Judah, which they had been idealising for fifty years, and were
further afflicted by barren seasons, their hearts must have suffered
an even more bitter disillusion than has so frequently fallen to the lot
of religious emigrants to an absolutely new coast.

1. THE CALL TO BUILD (Chap. i.).

 It was to this situation, upon an autumn day, when the colonists
felt another year of beggarly effort behind them and their wretched
harvest had been brought home, that the prophet Haggai addressed
himself. With rare sense he confined his efforts to the practical
needs of the moment. The sneers of modern writers have not been
spared upon a style that is crabbed and jejune, and they have
esteemed this to be a collapse of the prophetic spirit, in which
Haggai ignored all the achievements of prophecy and interpreted the
word of God as only a call to hew wood and lay stone upon stone.
But the man felt what the moment needed, and that is the supreme
mark of the prophet. Set a prophet there, and what else could a
prophet have done? It would have been futile to rewaken those
most splendid voices of the past, which had in part been the reason
of the people’s disappointment, and equally futile to interpret the
mission of the great world powers towards God’s people. What God’s
people themselves could do for themselves—that was what needed
telling at the moment; and if Haggai told it with a meagre and
starved style, this also was in harmony with the occasion. One does
not expect it otherwise when hungry men speak to each other of
their duty.
Nor does Haggai deserve blame that he interpreted the duty as
the material building of the Temple. This was no mere ecclesiastical
function. Without the Temple the continuity of Israel’s religion could
not be maintained. An independent state, with the full courses of
civic life, was then impossible. The ethical spirit, the regard for each
other and God, could prevail over their material interests in no other
way than by common devotion to the worship of the God of their
fathers. In urging them to build the Temple from their own unaided
resources, in abstaining from all hopes of imperial patronage, in
making the business one, not of sentiment nor of comfortable
assurance derived from the past promises of God, but of plain and
hard duty—Haggai illustrated at once the sanity and the spiritual
essence of prophecy in Israel.
Professor Robertson Smith has contrasted the central importance
which Haggai attached to the Temple with the attitude of Isaiah and
Jeremiah, to whom “the religion of Israel and the holiness of
Jerusalem have little to do with the edifice of the Temple. The city is
holy because it is the seat of Jehovah’s sovereignty on earth, exerted
in His dealings with and for the state of Judah and the kingdom of
David.”[660] At the same time it ought to be pointed out that even to
Isaiah the Temple was the dwelling-place of Jehovah, and if it had
been lying in ruins at his feet, as it was at Haggai’s, there is little
doubt he would have been as earnest as Haggai in urging its
reconstruction. Nor did the Second Isaiah, who has as lofty an idea
of the spiritual destiny of the people as any other prophet, lay less
emphasis upon the cardinal importance of the Temple to their life,
and upon the certainty of its future glory.
In the second year of Darius[661] the king, in the sixth month and
the first day of the month—that is, on the feast of the new moon—
the word of Jehovah came by[662] Haggai the prophet to Zerubbabel,
son of She’altî’el,[663] Satrap of Judah, and to Jehoshua', son of
Jehoṣadaḳ,[664] the high priest—the civil and religious heads of the
community—as follows[665]:—
Thus hath Jehovah of Hosts spoken, saying: This people have
said, Not yet[666] is come the time for the building of Jehovah’s
House. Therefore Jehovah’s word is come by Haggai the prophet,
saying: Is it a time for you—you[667]—to be dwelling in houses cieled
with planks,[668] while this House is waste? And now thus saith
Jehovah of Hosts: Lay to heart how things have gone with you.[669]
Ye sowed much but had little income, ate and were not satisfied,
drank and were not full, put on clothing and there was no warmth,
while he that earned wages has earned them into a bag with holes.
Thus saith Jehovah of Hosts:[670] Go up into the mountain—the
hill-country of Judah—and bring in timber, and build the House, that
I may take pleasure in it, and show My glory, saith Jehovah. Ye
looked for much and it has turned out little,[671] and what ye
brought home I puffed at. On account of what?—oracle of Jehovah
of Hosts—on account of My House which is waste, while ye are
hurrying every man after his own house. Therefore[672] hath heaven
shut off the dew,[673] and earth shut off her increase. And I have
called drought upon the earth, both upon the mountains,[674] and
upon the corn, and upon the wine, and upon the oil, and upon what
the ground brings forth, and upon man, and upon beast, and upon
all the labour of the hands.
For ourselves, Haggai’s appeal to the barren seasons and poverty
of the people as proof of God’s anger with their selfishness must
raise questions. But we have already seen, not only that natural
calamities were by the ancient world interpreted as the penal
instruments of the Deity, but that all through history they have had a
wonderful influence on the spirits of men, forcing them to search
their own hearts and to believe that Providence is conducted for
other ends than those of our physical prosperity. “Have not those
who have believed as Amos believed ever been the strong spirits of
our race, making the very disasters which crushed them to the earth
the tokens that God has great views about them?”[675] Haggai,
therefore, takes no sordid view of Providence when he interprets the
seasons, from which his countrymen had suffered, as God’s anger
upon their selfishness and delay in building His House.
The straight appeal to the conscience of the Jews had an
immediate effect. Within three weeks they began work on the
Temple.
And Zerubbabel, son of She’altî’el, and Jehoshua’, son of
Jehoṣadaḳ, the high priest, and all the rest of the people, hearkened
to the voice of Jehovah their God, and to the words of Haggai the
prophet, as Jehovah their God had sent him; and the people feared
before the face of Jehovah. [And Haggai, the messenger of Jehovah,
in Jehovah’s mission to the people, spake, saying, I am with you—
oracle of Jehovah.][676] And Jehovah stirred the spirit of Zerubbabel,
son of She’altî’el, Satrap of Judah, and the spirit of Jehoshua’, son of
Jehoṣadaḳ, the high priest, and the spirit of all the rest of the
people; and they went and did work in the House of Jehovah of
Hosts, their God, on the twenty-fourth day of the sixth month, in the
second year of Darius the king.[677]
Note how the narrative emphasises that the new energy was, as
it could not but be from Haggai’s unflattering words, a purely
spiritual result. It was the spirit of Zerubbabel, and the spirit of
Jehoshua, and the spirit of all the rest of the people, which was
stirred—their conscience and radical force of character. Not in vain
had the people suffered their great disillusion under Cyrus, if now
their history was to start again from sources so inward and so pure.

2. COURAGE, ZERUBBABEL! COURAGE, JEHOSHUA AND

ALL THE PEOPLE! (Chap. ii. 1–9).

The second occasion on which Haggai spoke to the people was

another feast the same autumn, the seventh day of the Feast of
Tabernacles,[678] the twenty-first of the seventh month. For nearly
four weeks the work on the Temple had proceeded. Some progress
must have been made, for comparisons became possible between
the old Temple and the state of this one. Probably the outline and
size of the building were visible. In any case it was enough to
discourage the builders with their efforts and the means at their
disposal. Haggai’s new word is a very simple one of encouragement.
The people’s conscience had been stirred by his first; they needed
now some hope. Consequently he appeals to what he had ignored
before, the political possibilities which the present state of the world
afforded—always a source of prophetic promise. But again he makes
his former call upon their own courage and resources. The Hebrew
text contains a reference to the Exodus which would be appropriate
to a discourse delivered during the Feast of Tabernacles, but it is not
found in the Septuagint, and is so impossible to construe that it has
been justly suspected as a gloss, inserted by some later hand, only
because the passage had to do with the Feast of Tabernacles.
In the seventh month, on the twenty-first day of the month, the
word of Jehovah came by[679] Haggai the prophet, saying:—
Speak now to Zerubbabel, son of She’altî’el, Satrap of Judah, and
to Jehoshua’, son of Jehoṣadaḳ, the high priest, and to the rest of
the people, saying: Who among you is left that saw this House in its
former glory, and how do ye see it now? Is it not as nothing in your
eyes?[680] And now courage,[681] O Zerubbabel—oracle of Jehovah—
and courage, Jehoshua', son of Jehoṣadaḳ, O high priest;[682] and
courage, all people of the land!—oracle of Jehovah; and get to work,
for I am with you—oracle of Jehovah of Hosts[683]—and My Spirit is
standing in your midst. Fear not! For thus saith Jehovah of Hosts: It
is but a little while, and I will shake the heavens, and the earth and
the sea and the dry land; and I will shake all nations, and the costly
things[684] of all nations shall come in, and I will fill this House with
glory, saith Jehovah of Hosts. Mine is the silver and Mine the gold—
oracle of Jehovah of Hosts. Greater shall the latter glory of this
House be than the former, saith Jehovah of Hosts, and in this place
will I give peace[685]—oracle of Jehovah of Hosts.
From the earliest times this passage, by the majority of the
Christian Church, has been interpreted of the coming of Christ. The
Vulgate renders ver. 7b, Et veniet Desideratus cunctis gentibus, and
so a large number of the Latin Fathers, who are followed by Luther,
Der Trost aller Heiden, and by our own Authorised Version, And the
Desire of all nations shall come. This was not contrary to Jewish
tradition, for Rabbi Akiba had defined the clause of the Messiah, and
Jerome received the interpretation from his Jewish instructors. In
itself the noun, as pointed in the Massoretic text, means longing or
object of longing.[686] But the verb which goes with it is in the plural,
and by a change of points the noun itself may be read as a plural.
[687] That this was the original reading is made extremely probable

by the fact that it lay before the translators of the Septuagint, who
render: the picked, or chosen, things of the nations.[688] So the old
Italic version: Et venient omnia electa gentium.[689] Moreover this
meaning suits the context, as the other does not. The next verse
mentions silver and gold. “We may understand what he says,” writes
Calvin, “of Christ; we indeed know that Christ was the expectation of
the whole world; ... but as it immediately follows, Mine is the silver
and Mine is the gold, the more simple meaning is that which I first
stated: that the nations would come, bringing with them all their
riches, that they might offer themselves and all their possessions a
sacrifice to God.”[690]
 3. THE POWER OF THE UNCLEAN (Chap. ii. 10–19).
Haggai’s third address to the people is based on a deliverance
which he seeks from the priests. The Book of Deuteronomy had
provided that, in all difficult cases not settled by its own code, the
people shall seek a deliverance or Torah from the priests, and shall
observe to do according to the deliverance which the priests deliver
to thee.[691] Both noun and verb, which may be thus literally
translated, are also used for the completed and canonical Law in
Israel, and they signify that in the time of the composition of the
Book of Deuteronomy that Law was still regarded as in process of
growth. So it is also in the time of Haggai: he does not consult a
code of laws, nor asks the priests what the canon says, as, for
instance, our Lord does with the question, how readest thou? But he
begs them to give him a Torah or deliverance,[692] based of course
upon existing custom, but not yet committed to writing.[693] For the
history of the Law in Israel this is, therefore, a passage of great
interest.
On the twenty-fourth of the ninth month, in the second year of
Darius, the word of Jehovah came to[694] Haggai the prophet,
saying: Thus saith Jehovah of Hosts, Ask, I pray, of the priests a
deliverance,[695] saying:—
If a man be carrying flesh that is holy in the skirt of his robe, and
with his skirt touch bread or pottage or wine or oil or any food, shall
the latter become holy? And the priests gave answer and said, No!
And Haggai said, If one unclean by a corpse[696] touch any of these,
shall the latter become unclean? And the priests gave answer and
said, It shall. That is to say, holiness which passed from the source
to an object immediately in touch with the latter did not spread
further; but pollution infected not only the person who came into
contact with it, but whatever he touched.[697] “The flesh of the
sacrifice hallowed whatever it should touch, but not further;[698] but
the human being who was defiled by touching a dead body, defiled
all he might touch.”[699] And Haggai answered and said: So is this
people, and so is this nation before Me—oracle of Jehovah—and so
is all the work of their hands, and what they offer there—at the altar
erected on its old site—is unclean.[700] That is to say, while the Jews
had expected their restored ritual to make them holy to the Lord,
this had not been effective, while, on the contrary, their contact with
sources of pollution had thoroughly polluted both themselves and
their labour and their sacrifices. What these sources of pollution are
is not explicitly stated, but Haggai, from his other messages, can
only mean, either the people’s want of energy in building the
Temple, or the unbuilt Temple itself. Andrée goes so far as to
compare the latter with the corpse, whose touch, according to the
priests, spreads infection through more than one degree. In any
case Haggai means to illustrate and enforce the building of the
Temple without delay; and meantime he takes one instance of the
effect he has already spoken of, the work of their hands, and shows
how it has been spoilt by their neglect and delay. And now, I pray,
set your hearts backward from to-day,[701] before stone was laid
upon stone in the Temple of Jehovah: ...[702] when one came to a
heap of grain of twenty measures, and it had become ten, or went
to the winevat to draw fifty measures,[703] and it had become
twenty. I smote you with blasting and with withering,[704] and with
hail all the work of your hands, and ...[705]—oracle of Jehovah. Lay
now your hearts on the time before to-day[706] (the twenty-fourth
day of the ninth month[707]), before the day of the foundation of the
Temple of Jehovah[708]—lay your hearts to that time! Is there yet
any seed in the barn[709]? And as yet[710] the vine, the fig-tree, the
pomegranate and the olive have not borne fruit. From this day I will
bless thee.
This then is the substance of the whole message. On the twenty-
fourth day of the ninth month, somewhere in our December, the
Jews had been discouraged that their attempts to build the Temple,
begun three months before,[711] had not turned the tide of their
misfortunes and produced prosperity in their agriculture. Haggai tells
them, there is not yet time for the change to work. If contact with a
holy thing has only a slight effect, but contact with an unclean thing
has a much greater effect (verses 11–13), then their attempts to
build the Temple must have less good influence upon their condition
than the bad influence of all their past devotion to themselves and
their secular labours. That is why adversity still continues, but
courage! from this day on God will bless. The whole message is,
therefore, opportune to the date at which it was delivered, and
comes naturally on the back of Haggai’s previous oracles. Andrée’s
reason for assigning it to another writer, on the ground of its
breaking the connection, does not exist.[712]
These poor colonists, in their hope deferred, were learning the
old lesson, which humanity finds so hard to understand, that
repentance and new-born zeal do not immediately work a change
upon our material condition; but the natural consequences of sin
often outweigh the influence of conversion, and though devoted to
God and very industrious we may still be punished for a sinful past.
Evil has an infectious power greater than that of holiness. Its effects
are more extensive and lasting.[713] It was no bit of casuistry which
Haggai sought to illustrate by his appeal to the priests on the
ceremonial law, but an ethical truth deeply embedded in human
experience.

4.THE REINVESTMENT OF ISRAEL’S HOPE (Chap. ii. 20–23).

On the same day Haggai published another oracle, in which he
put the climax to his own message by re-investing in Zerubbabel the
ancient hopes of his people. When the monarchy fell the Messianic
hopes were naturally no longer concentrated in the person of a king;
and the great evangelist of the Exile found the elect and anointed
Servant of Jehovah in the people as a whole, or in at least the pious
part of them, with functions not of political government but of moral
influence and instruction towards all the peoples of the earth. Yet in
the Exile Ezekiel still predicted an individual Messiah, a son of the
house of David; only it is significant that, in his latest prophecies
delivered after the overthrow of Jerusalem, Ezekiel calls him not
king[714] any more, but prince.[715]
After the return of Sheshbazzar to Babylon this position was
virtually filled by Zerubbabel, a grandson of Jehoiakin, the second
last king of Judah, and appointed by the Persian king Peḥah or
Satrap of Judah. Him Haggai now formally names the elect servant
of Jehovah. In that overturning of the kingdoms of the world which
Haggai had predicted two months before, and which he now
explains as their mutual destruction by war, Jehovah of Hosts will
make Zerubbabel His signet-ring, inseparable from Himself and the
symbol of His authority.
And the word of Jehovah came a second time to[716] Haggai on
the twenty-fourth day of the ninth month, saying: Speak to
Zerubbabel, Satrap of Judah, saying: I am about to shake the
heavens and the earth,[717] and I will overturn the thrones[718] of
kingdoms, and will shatter the power of the kingdoms of the
Gentiles, and will overturn chariots[719] and their riders, and horses
and their riders will come down, every man by the sword of his
brother. In that day—oracle of Jehovah of Hosts—I will take
Zerubbabel, son of She’altî’el, My servant—oracle of Jehovah—and
will make him like a signet-ring; for thee have I chosen—oracle of
Jehovah of Hosts.
The wars and mutual destruction of the Gentiles, of which Haggai
speaks, are doubtless those revolts of races and provinces, which
threatened to disrupt the Persian Empire upon the accession of
Darius in 521. Persians, Babylonians, Medes, Armenians, the Sacæ
and others rose together or in succession. In four years Darius
quelled them all, and reorganised his empire before the Jews
finished their Temple. Like all the Syrian governors, Zerubbabel
remained his poor lieutenant and submissive tributary. History rolled
westward into Europe. Greek and Persian began their struggle for
the control of its future, and the Jews fell into an obscurity and
oblivion unbroken for centuries. The signet-ring of Jehovah was not
acknowledged by the world—does not seem even to have challenged
its briefest attention. But Haggai had at least succeeded in asserting
the Messianic hope of Israel, always baffled, never quenched, in this
re-opening of her life. He had delivered the ancient heritage of Israel
to the care of the new Judaism.

Haggai’s place in the succession of prophecy ought now to be

clear to us. The meagreness of his words and their crabbed style, his
occupation with the construction of the Temple, his unfulfilled hope
in Zerubbabel, his silence on the great inheritance of truth delivered
by his predecessors, and the absence from his prophesying of all
visions of God’s character and all emphasis upon the ethical
elements of religion—these have moved some to depress his value
as a prophet almost to the vanishing point. Nothing could be more
unjust. In his opening message Haggai evinced the first
indispensable power of the prophet: to speak to the situation of the
moment, and to succeed in getting men to take up the duty at their
feet; in another message he announced a great ethical principle; in
his last he conserved the Messianic traditions of his religion, and
though not less disappointed than Isaiah in the personality to whom
he looked for their fulfilment, he succeeded in passing on their hope
undiminished to future ages.
 ZECHARIAH
(I.—VIII.)

Not by might, and not by force, but by My

Spirit, saith Jehovah of Hosts.
Be not afraid, strengthen your hands! Speak
truth, every man to his neighbour; truth and
wholesome judgment judge ye in your gates, and
in your hearts plan no evil for each other, nor
take pleasure in false swearing, for all these
things do I hate—oracle of Jehovah.
 CHAPTER XIX

THE BOOK OF ZECHARIAH (I.—VIII.)

The Book of Zechariah, consisting of fourteen chapters, falls clearly

into two divisions: First, chaps. i.—viii., ascribed to Zechariah himself
and full of evidence for their authenticity; Second, chaps. ix.—xiv.,
which are not ascribed to Zechariah, and deal with conditions
different from those upon which he worked. The full discussion of
the date and character of this second section we shall reserve till we
reach the period at which we believe it to have been written. Here
an introduction is necessary only to chaps. i.—viii.
These chapters may be divided into five sections.
I. Chap. i. 1–6.—A Word of Jehovah which came to Zechariah in the eighth
month of the second year of Darius, that is in November 520 B.C., or between the
second and the third oracles of Haggai.[720] In this the prophet’s place is affirmed
in the succession of the prophets of Israel. The ancient prophets are gone, but
their predictions have been fulfilled in the calamities of the Exile, and God’s Word
abides for ever.
II. Chap. i. 7—vi. 9.—A Word of Jehovah which came to Zechariah on the
twenty-fourth of the eleventh month of the same year, that is January or February
519, and which he reproduces in the form of eight Visions by night. (1) The Vision
of the Four Horsemen: God’s new mercies to Jerusalem (chap. i. 7–17). (2) The
Vision of the Four Horns, or Powers of the World, and the Four Smiths, who smite
them down (ii. 1–4 Heb., but in the Septuagint and in the English Version i. 18–
21). (3) The Vision of the Man with the Measuring Rope: Jerusalem shall be
rebuilt, no longer as a narrow fortress, but spread abroad for the multitude of her
population (chap. ii. 5–9 Heb., ii. 1–5 LXX. and Eng.). To this Vision is appended a
lyric piece of probably older date calling upon the Jews in Babylon to return, and
celebrating the joining of many peoples to Jehovah, now that He takes up again
His habitation in Jerusalem (chap. ii. 10–17 Heb., ii. 6–13 LXX. and Eng.). (4) The
Vision of Joshua, the High Priest, and the Satan or Accuser: the Satan is rebuked,
and Joshua is cleansed from his foul garments and clothed with a new turban and
festal apparel; the land is purged and secure (chap. iii.). (5) The Vision of the
Seven-Branched Lamp and the Two Olive-Trees (chap. iv. 1–6a, 10b-14): into the
centre of this has been inserted a Word of Jehovah to Zerubbabel (vv. 6b-10a),
which interrupts the Vision and ought probably to come at the close of it. (6) The
Vision of the Flying Book: it is the curse of the land, which is being removed, but
after destroying the houses of the wicked (chap. v. 1–4). (7) The Vision of the
Bushel and the Woman: that is the guilt of the land and its wickedness; they are
carried off and planted in the land of Shinar (v. 5–11). (8) The Vision of the Four
Chariots: they go forth from the Lord of all the earth, to traverse the earth and
bring His Spirit, or anger, to bear on the North country (chap. vi. 1–8).
III. Chap. vi. 9–15.—A Word of Jehovah, undated (unless it is to be taken as of
the same date as the Visions to which it is attached), giving directions as to the
gifts sent to the community at Jerusalem from the Babylonian Jews. A crown is to
be made from the silver and gold, and, according to the text, placed upon the
head of Joshua. But, as we shall see,[721] the text gives evident signs of having
been altered in the interest of the High Priest; and probably the crown was meant
for Zerubbabel, at whose right hand the priest is to stand, and there shall be a
counsel of peace between the two of them. The far-away shall come and assist at
the building of the Temple. This section breaks off in the middle of a sentence.
IV. Chap. vii.—The Word of Jehovah which came to Zechariah on the fourth of
the ninth month of the fourth year of Darius, that is nearly two years after the
date of the Visions. The Temple was approaching completion; and an inquiry was
addressed to the priests who were in it and to the prophets concerning the Fasts,
which had been maintained during the Exile, while the Temple lay desolate (chap.
vii. 1–3). This inquiry drew from Zechariah a historical explanation of how the
Fasts arose (chap. vii. 4–14).
V. Chap. viii.—Ten short undated oracles, each introduced by the same formula,
Thus saith Jehovah of Hosts, and summarising all Zechariah’s teaching since
before the Temple began up to the question of the cessation of the Fasts upon its
completion—with promises for the future. (1) A Word affirming Jehovah’s new zeal
for Jerusalem and His Return to her (vv. 1, 2). (2) Another of the same (ver. 3).
(3) A Word promising fulness of old folk and children in her streets (vv. 4, 5). (4) A
Word affirming that nothing is too wonderful for Jehovah (ver. 6). (5) A Word
promising the return of the people from east and west (vv. 7, 8). (6 and 7) Two
Words contrasting, in terms similar to Haggai i., the poverty of the people before
the foundation of the Temple with their new prosperity: from a curse Israel shall
become a blessing. This is due to God’s anger having changed into a purpose of
grace to Jerusalem. But the people themselves must do truth and justice, ceasing
from perjury and thoughts of evil against each other (vv. 9–17). (8) A Word which
recurs to the question of Fasting, and commands that the four great Fasts,
instituted to commemorate the siege and overthrow of Jerusalem, and the murder
of Gedaliah, be changed to joy and gladness (vv. 18, 19). (9) A Word predicting
the coming of the Gentiles to the worship of Jehovah at Jerusalem (vv. 20–22).
(10) Another of the same (ver. 23).

There can be little doubt that, apart from the few interpolations
noted, these eight chapters are genuine prophecies of Zechariah,
who is mentioned in the Book of Ezra as the colleague of Haggai,
and contemporary of Zerubbabel and Joshua at the time of the
rebuilding of the Temple.[722] Like the oracles of Haggai, these
prophecies are dated according to the years of Darius the king, from
his second year to his fourth. Although they may contain some of
the exhortations to build the Temple, which the Book of Ezra informs
us that Zechariah made along with Haggai, the most of them
presuppose progress in the work, and seek to assist it by historical
retrospect and by glowing hopes of the Messianic effects of its
completion. Their allusions suit exactly the years to which they are
assigned. Darius is king. The Exile has lasted about seventy years.
[723]Numbers of Jews remain in Babylon,[724] and are scattered over
the rest of the world.[725] The community at Jerusalem is small and
weak: it is the mere colony of young men and men in middle life
who came to it from Babylon; there are few children and old folk.
[726] Joshua and Zerubbabel are the heads of the community, and
the pledges for its future.[727] The exact conditions are recalled as
recent which Haggai spoke of a few years before.[728] Moreover,
there is a steady and orderly progress throughout the prophecies, in
harmony with the successive dates at which they were delivered. In
November 520 they begin with a cry to repentance and lessons
drawn from the past of prophecy.[729] In January 519 Temple and
City are still to be built.[730] Zerubbabel has laid the foundation; the
completion is yet future.[731] The prophet’s duty is to quiet the
people’s apprehensions about the state of the world,[732] to provoke
their zeal,[733] give them confidence in their great men,[734] and,
above all, assure them that God is returned to them[735] and their
sin pardoned.[736] But in December 518 the Temple is so far built
that the priests are said to belong to it;[737] there is no occasion for
continuing the fasts of the Exile,[738] the future has opened and the
horizon is bright with the Messianic hopes.[739] Most of all, it is felt
that the hard struggle with the forces of nature is over, and the
people are exhorted to the virtues of the civic life.[740] They have
time to lift their eyes from their work and see the nations coming
from afar to Jerusalem.[741]
These features leave no room for doubt that the great bulk of the
first eight chapters of the Book of Zechariah are by the prophet
himself, and from the years to which he assigns them, November
520 to December 518. The point requires no argument.
There are, however, three passages which provoke further
examination—two of them because of the signs they bear of an
earlier date, and one because of the alteration it has suffered in the
interests of a later day in Israel’s history.
The lyric passage which is appended to the Second Vision (chap.
ii 10–17 Heb., 6–13 LXX. and Eng.) suggests questions by its
singularity: there is no other such among the Visions. But in addition
to this it speaks not only of the Return from Babylon as still
future[742]—this might still be said after the First Return of the exiles
in 536[743]—but it differs from the language of all the Visions proper
in describing the return of Jehovah Himself to Zion as still future.
The whole, too, has the ring of the great odes in Isaiah xl.—lv., and
seems to reflect the same situation, upon the eve of Cyrus’ conquest
of Babylon. There can be little doubt that we have here inserted in
Zechariah’s Visions a song of twenty years earlier, but we must
confess inability to decide whether it was adopted by Zechariah
himself or added by a later hand.[744]
Again, there are the two passages called the Word of Jehovah to
Zerubbabel, chap. iv. 6b-10a; and the Word of Jehovah concerning
the gifts which came to Jerusalem from the Jews in Babylon, chap.
vi. 9–15. The first, as Wellhausen has shown,[745] is clearly out of
place; it disturbs the narrative of the Vision, and is to be put at the
end of the latter. The second is undated, and separate from the
Visions. The second plainly affirms that the building of the Temple is
still future. The man whose name is Branch or Shoot is designated:
and he shall build the Temple of Jehovah. The first is in the same
temper as the first two oracles of Haggai. It is possible then that
these two passages are not, like the Visions with which they are
taken, to be dated from 519, but represent that still earlier
prophesying of Zechariah with which we are told he assisted Haggai
in instigating the people to begin to build the Temple.

The style of the prophet Zechariah betrays special features

almost only in the narrative of the Visions. Outside these his
language is simple, direct and pure, as it could not but be,
considering how much of it is drawn from, or modelled upon, the
older prophets,[746] and chiefly Hosea and Jeremiah. Only one or
two lapses into a careless and degenerate dialect show us how the
prophet might have written, had he not been sustained by the music
of the classical periods of the language.[747]
This directness and pith is not shared by the language in which
the Visions are narrated.[748] Here the style is involved and
redundant. The syntax is loose; there is a frequent omission of the
copula, and of other means by which, in better Hebrew, connection
and conciseness are sustained. The formulas, thus saith and saying,
are repeated to weariness. At the same time it is fair to ask, how
much of this redundancy was due to Zechariah himself? Take the
Septuagint version. The Hebrew text, which it followed, not only
included a number of repetitions of the formulas, and of the
designations of the personages introduced into the Visions, which do
not occur in the Massoretic text,[749] but omitted some which are
found in the Massoretic text.[750] These two sets of phenomena
prove that from an early date the copiers of the original text of
Zechariah must have been busy in increasing its redundancies.
Further, there are still earlier intrusions and expansions, for these are
shared by both the Hebrew and the Greek texts: some of them very
natural efforts to clear up the personages and conversations
recorded in the dreams,[751] some of them stupid mistakes in
understanding the drift of the argument.[752] There must of course
have been a certain amount of redundancy in the original to provoke
such aggravations of it, and of obscurity or tortuousness of style to
cause them to be deemed necessary. But it would be very unjust to
charge all the faults of our present text to Zechariah himself,
especially when we find such force and simplicity in the passages
outside the Visions. Of course the involved and misty subjects of the
latter naturally forced upon the description of them a laboriousness
of art, to which there was no provocation in directly exhorting the
people to a pure life, or in straightforward predictions of the
Messianic era.
Beyond the corruptions due to these causes, the text of
Zechariah i.—viii. has not suffered more than that of our other
prophets. There are one or two clerical errors;[753] an occasional
preposition or person of a verb needs to be amended. Here and
there the text has been disarranged;[754] and as already noticed,
there has been one serious alteration of the original.[755]
From the foregoing paragraphs it must be apparent what help
and hindrance in the reconstruction of the text is furnished by the
Septuagint. A list of its variant readings and of its mistranslations is
appended.[756]
 CHAPTER XX

ZECHARIAH THE PROPHET

ZECHARIAH i. 1–6, etc.; EZRA v. 1, vi. 14

Zechariah is one of the prophets whose personality as distinguished

from their message exerts some degree of fascination on the
student. This is not due, however, as in the case of Hosea or
Jeremiah, to the facts of his life, for of these we know extremely
little; but to certain conflicting symptoms of character which appear
through his prophecies.
His name was a very common one in Israel, Zekher-Yah, Jehovah
remembers.[757] In his own book he is described as the son of
Berekh-Yah, the son of Iddo,[758] and in the Aramaic document of
the Book of Ezra as the son of Iddo.[759] Some have explained this
difference by supposing that Berekhyah was the actual father of the
prophet, but that either he died early, leaving Zechariah to the care
of the grandfather, or else that he was a man of no note, and Iddo
was more naturally mentioned as the head of the family. There are
several instances in the Old Testament of men being called the sons
of their grandfathers:[760] as in these cases the grandfather was the
reputed founder of the house, so in that of Zechariah Iddo was the
head of his family when it came out of Babylon and was anew
planted in Jerusalem. Others, however, have contested the
genuineness of the words son of Berekh-Yah, and have traced their
insertion to a confusion of the prophet with Zechariah son of
Yĕbherekh-Yahu, the contemporary of Isaiah.[761] This is precarious,
while the other hypothesis is a very natural one.[762] Whichever be
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