Business Combination

Question 1

Business combination

Answer 1

Thus, in the absence of a bargain purchase and NCIs, total equity of the consolidated entity immediately after acquisition is the same as the total equity of the parent. Consequently, equity reported in the consolidated balance sheet prepared immediately after the acquisition of Subtle by Pent is common stock + retained earnings +accumulated OCI).

Question 2

Goodwill

Answer 2

reflecting the future economic benefits arising from other assets acquired in a business combination. The acquirer may recognize goodwill at the acquisition date.
The consideration transferred (normally measured at acquisition-date fair value)
The fair value of any noncontrolling interest The acquisition-date fair value of a previously held equity interest in the acquiree

Question 3

Goodwill

Answer 3

The net of acquisition-date amounts of
Identifiable assets acquired
Liabilities assumed

Question 4

Consolidated financial statements report

Answer 4

Results of operations, and cash flows as if the consolidated entities were a single economic entity. Thus, subsidiary shareholdings in a parent are normally treated as treasury stock on the consolidated balance sheet. Gains and losses on treasury stock are not recognized. Thus, no gain is recognized in the consolidated income statement when a subsidiary purchases the parent’s stock on the open market.

Question 5

Consolidated financial statements are prepared when a parent-subsidiary relationship exists in recognition of the accounting concept of

Answer 5

Enttity -Accounting information pertains to a business entity, the boundaries of which are not necessarily those of the legal entity. For example, a parent and subsidiary are legally separate but are treated as a single business entity in consolidated statements.

Question 6

Expensed as incurred in the current period.

Answer 6

In a business combination, acquisition-related costs, such as finder’s fees, professional and consulting fees, and general administrative costs, are expensed as incurred. If this transaction were an acquisition of a group of assets (and not a business combination), the direct acquisition costs would be allocated on a pro rata basis to the assets acquired.

Question 7

Consolidated financial statements are typically prepared when one entity has a majority voting interest in another unless

Answer 7

A majority-owned subsidiary is not consolidated if control does not rest with the majority owner.

Question 8

Parent-only balance sheet

Answer 8

In a parent-only balance sheet, the acquirer recognizes only an investment in subsidiary and the issuance of equity. The fair value of the consideration transferred is the measure of the investment immediately after the combination. (In a consolidated balance sheet, no investment in the subsidiary would be recognized.)

Question 9

Consolidated financial reporting

Answer 9

Consolidated financial reporting is required when one entity owns, directly or indirectly, more than 50% of the outstanding voting interests of another entity.

Question 10

Receivables and Payables

Answer 10

In a consolidated balance sheet, reciprocal balances, such as receivables and payables, between a parent and a consolidated subsidiary are eliminated in their entirety, regardless of the portion of the subsidiary’s stock held by the parent. Thus, Wright should report $0 as intraentity receivables.

Question 11

reported as receivables from affiliate

Answer 11

Cost of Sales must be eliminated in its entirety

Question 12

Equity formula for consolidated income statement

Answer 12

Common Stock and Retain Earning

Question 13

consolidated financial statements of a parent and its 90%-owned subsidiary,

Answer 13

In whichever presentation of consolidated comprehensive income or loss is chosen, the noncontrolling interest’s adjusted share of the subsidiary’s comprehensive income or loss is subtracted from the consolidated amount to determine the amount attributable to the parent. Thus, three amounts are displayed on the face of the consolidated statements: (1) a total, (2) the noncontrolling interest’s share, and (3) the parent’s share.

Question 14

The gain on a bargain purchase

Question 15

Unrealized intraentity profit

Answer 15

The inventory eliminated is equal to the unrealized intraentity gross profit. The amount of inventory eliminated in the consolidation is $6,000 ($60,000 + $50,000 – $104,000)