1.07 CONSOLIDATED FS Flashcards
effective control
more than 50% ownership
what circumstances prevent a parent from exercising control (will not consolidate)
a sub controlled by the foreign government or sub in bankruptcy
what accounts are eliminated in the consolidation process
parents investment account, subs equity accounts, effects of inter-company transactions
how are assets and liabilities consolidated
reported at 100% of FV
how is non-controlling interest consolidated
reported at FV (entire amount is reported as a single amount)
Determining amount of goodwill recognized
- FV of assets
- FV of liabilities
- Non-controlling interest (equity in the sub not owned by the parent)
- Recognize the goodwill (negative = gain)
If the sub holds shares of the common stock of the parent
will be treated as treasury stock, gains are not recognized
What are reciprocal balances
a receivable on the parents books is a payable on the subs book (vice versa)
ELIMINATE BOTH
Inter-company inventory transaction
eliminate the GP recognized for the inventory remaining on the purchaser’s books
Inter-company non-current asset transaction
eliminate any gain or loss on the sale (report like exchange never occurred)
Inter-company debt transaction
eliminate and treat as an extinguishment of debt, recognize any gain or loss
All accounts related to the debt are eliminated (all interest)
Inter-company dividends
eliminated (only report parent dividends)
consolidating retained earnings
equals RE of parent company
consolidating equity
Right after the combination, the consolidated equity will equal the parent equity
consolidating net income
add net income of the sub only for the time following the acquisition date)
