Acquisition Method Flashcards
Journal entry to record the acquisition for cash?
Dr. Investment in subsidiary, Cr. Cash
Journal entry to record the acquisition for parent common stock
Dr. Investment in subsidiary, Cr. Common stock, Cr. APIC
What is the investment always valued at?
Fair value
What are the 2 distinct accounting characteristics for the acquisition method?
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
An acquiring corporation should adjust the following items during consolidation?
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
What is the mneumonic for the consolidating workpaper eliminating journal entry?
CAR IN BIG
The year-end consolidating journal entry known as the consolidating workpaper eliminating journal entry is?
Dr. Common stock, APIC, Retained earnings, Balance sheet adjustments to FB, Identifiale intangible assets to FV, Cr. Investment in subsidiary and Noncontrolling interest
What is the Common stock, APIC, and retained earnings valued at?
Book value
What is the investment in subsidiary valued at?
Acquisition price
What account is debited for stock registratino and issuance costs such as SEC filing fees?
Additional paid-in capital account
How are bond issue costs treated?
Capitalized and amortized in the bond issue costs account
How is noncontrolling interest reported?
Fair value in the equity section of the consolidated balance sheet
How is noncontrolling interest calculated?
FV of the subsidiary x noncontrolling interest %
Under IFRS, what two methods can be used for noncontrolling interest?
Partial goodwill and full goodwill
How is noncontrolling interest calculated under the partial goodwill method?
Fair value of subsidiary’s net identifiable assets x noncontrolling interest %
How is goodwill calculated under the partial goodwill method?
Acquisition cost - FV of subsidiary’s net assets acquired
What are the steps necessary in order to prepare a consolidated statement of cash flows in the period of acquisition?
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.
The preparation of consolidated statement of cash flows have differences such as?
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.
What method is used when net income is the same as parent net income?
Equity method
What must happen when an investor goes from control to non-control?
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
