Ch05: Outside Interests

Question 1

Noncontrolling Interest, Nc.Int

Answer 1

A portion of the subsidiary’s stock is held by outside investors.
Nc.Int appears as a separate line item under equity on the consolidated balance sheet
Nc.Int share of the subsidiary’s net income appears as a separate line on the IS.

The parent owns less than 100% of the subsidiary’s stock, but still controls it; the parent is required to consolidate the subsidiary’s revenue and expenses with the parent’s accounts.

Reported at fair value.

Question 2

Reasons for less than 100% ownership in a subsidiary

Answer 2

The prior owners of the subsidiary want to retain an interest in the company.
The buying company doesn’t want to invest the resources necessary to buy 100% of the stock.
The buying company couldn’t convince all of the shareholders of the subsidiary to sell their stakes during their acquisition.
An investment of less than 100% in the subsidiary satisfies the parent’s goals.

Question 3

Valuation of Noncontrolling Interests and Goodwill

Answer 3

Goodwill is attributed to both controlling and noncontrolling interests (not in the same proportions as control vs. non-control)
Reported at fair value.
Revaluations (R) entries of the differences between BV and FV are attributed to controlling and noncontrolling interests.

Question 4

Noncontrolling Interests and Goodwill

Day of Acquisition

Answer 4

Acquisition Cost
Noncontrolling Interest, Fair Value
Fair Value of the seller = [Acquisition Cost + Fair Value of Noncontrolling Interest]

Book Value [seller]

Revaluations [differences]

NIdA, R = Sum of differences + BV of seller

Goodwill = [Fair Value of seller] - [Book Value seller] - [NIdA, R]

Question 5

Goodwill to Controlling Interest

Answer 5

Acquisition Cost
Controlling Interest in NIdA = [Control %] x [NIdA, R]

Controlling Goodwill = [Acquisition Cost] - [Controlling Int. in NIdA]

Question 6

Goodwill to Noncontrolling Interest

Answer 6

Goodwill (from Goodwill calculation)
Controlling Goodwill

Noncontrolling Goodwill = [Goodwill] - [Controlling Goodwill]

Question 7

CIERON entry [E]

Answer 7

For the end of the current period, allocate the subsidiary’s equity account between the controlling interest [investment] and the noncontrolling interest in proportion to each percentage of ownership.

[E]
Dr: subsidiary stockholder equity; current BV
(Cr): parent investment in sub; [sub current BV x controlling %]
(Cr): noncontrolling interest in sub; [sub current BV x noncontrolling %]

Question 8

CIERON entry [R]

Answer 8

Assuming values as of the end of the period, revalue the subsidiary’s NIdA, from the acquisition date through the end of the current period; then allocate by ownership percentage the re-valuations between the controlling interest and noncontrolling interest.

Dr: current Goodwill; [Goodwill - impairment]
(Cr): overstated asset write-off, (-); [difference] - [difference / life] x [n periods from acquisition to end of current period]
(Cr): reversed liabilities, liabilities get less negative; [(-)liability + (reversal amount)]
(Cr): invesment in subsidiary; [control Gdw % x current Gdw] - [controlling % x (reversed liabilities) + (overstated asset write-off)]
(Cr): noncontrolling interest; [noncontrol Gdw % x current Gdw] - [noncontrolling % x (reversed liabilities) + (overstated asset write-off)]