Acquisition Method

Question 1

Journal entry to record the acquisition for cash?

Answer 1

Dr. Investment in subsidiary, Cr. Cash

Question 2

Journal entry to record the acquisition for parent common stock

Answer 2

Dr. Investment in subsidiary, Cr. Common stock, Cr. APIC

Question 3

What is the investment always valued at?

Answer 3

Fair value

Question 4

What are the 2 distinct accounting characteristics for the acquisition method?

Answer 4

100% of the net assets acquired are recorded at fair value with any unallocated balance remaining creating goodwill and the subsidiary’s entire equity is eliminated

Question 5

An acquiring corporation should adjust the following items during consolidation?

Answer 5

Common stock, APIC, and Retained Earnings, Investment in subsidiary, Noncontrolling interest is created, Balance sheet of subsidiary is adjusted to fair value, identifiable intangible assets of the subsidiary are recorded at fair value, and goodwill or gain is required

Question 6

What is the mneumonic for the consolidating workpaper eliminating journal entry?

Answer 6

CAR IN BIG

Question 7

The year-end consolidating journal entry known as the consolidating workpaper eliminating journal entry is?

Answer 7

Dr. Common stock, APIC, Retained earnings, Balance sheet adjustments to FB, Identifiale intangible assets to FV, Cr. Investment in subsidiary and Noncontrolling interest

Question 8

What is the Common stock, APIC, and retained earnings valued at?

Answer 8

Book value

Question 9

What is the investment in subsidiary valued at?

Answer 9

Acquisition price

Question 10

What account is debited for stock registratino and issuance costs such as SEC filing fees?

Answer 10

Additional paid-in capital account

Question 11

How are bond issue costs treated?

Answer 11

Capitalized and amortized in the bond issue costs account

Question 12

How is noncontrolling interest reported?

Answer 12

Fair value in the equity section of the consolidated balance sheet

Question 13

How is noncontrolling interest calculated?

Answer 13

FV of the subsidiary x noncontrolling interest %

Question 14

Under IFRS, what two methods can be used for noncontrolling interest?

Answer 14

Partial goodwill and full goodwill

Question 15

How is noncontrolling interest calculated under the partial goodwill method?

Answer 15

Fair value of subsidiary’s net identifiable assets x noncontrolling interest %

Question 16

How is goodwill calculated under the partial goodwill method?

Answer 16

Acquisition cost - FV of subsidiary’s net assets acquired

Question 17

What are the steps necessary in order to prepare a consolidated statement of cash flows in the period of acquisition?

Answer 17

Net cash spent or received in the acquisition must be reported in the investing section and assets and liabilities of the subsidiary on the acquisition date must be added to the parent’s assets and liabilities at the beginning of the year in order to determine the change in cash due to operating, investing, and financing activities during the period.

Question 18

The preparation of consolidated statement of cash flows have differences such as?

Answer 18

Reconciling net income to net cash provided by operating activities, total consolidated net income should be used, financing section should only report dividends paid by the subsidiary to noncontrolling shareholders, and investing section may report the acquisition of additional subsidiary shares by the parent if the acquisition was an open market purchase.

Question 19

What method is used when net income is the same as parent net income?

Answer 19

Equity method

Question 20

What must happen when an investor goes from control to non-control?

Answer 20

Investor must recognize a gain or loss from the sale of stock and then remeasure the remaining non consolidated interest to fair value. Gain or loss is recognized on income statement