Ch. 3 - Consolidations Subsequent to the Date of Acquisition

Question 1

What is Entry S?

Answer 1

Beginning stockholders’ equity of subsidiary is eliminated against book value portion of investment account

Question 2

What is Entry A?

Answer 2

Year of Acquisition:
Excess FV is allocated to assets and liabilities based on difference in book values and fair values; residual is assigned to goodwill

Subsequent to Year of Acquisition:
Unamortized excess fair value at beginning of year is allocated to specific accounts and to goodwill.

Question 3

What is Entry I?

Answer 3

Equity income accrual (including amortization expense) is eliminated.

Question 4

What is Entry D?

Answer 4

Intra-entity dividends paid by subsidiary are eliminated.

Question 5

What is Entry E?

Answer 5

Current year excess amortization expenses of FV allocations are recorded.

Question 6

What is Entry P?

Answer 6

Intra-entity payable/receivable balances are offset.

Question 7

What are the three methods of financial reporting of investments in equity securities?

Answer 7

1) . The Fair Value Method
2) The consolidation of financial statements
3) The equity method

Question 8

What is the basic sequence of steps in the consolidating process?

Answer 8

1) Record trial balances on consolidating worksheet;
2) Record adjusting entries, if any;
3) Record eliminating entries;
4) Complete consolidating worksheet;
5) Prepare consolidated financial statements.