Chapter 15 Flashcards
Control of a business means?
This usually means one entity’s direct or indirect ownership of more than 50% of the outstanding voting interests of another entity.
Direct issue costs of equity
reduce additional paid-in capital.
Debt issue costs
are reported in the balance sheet as a direct deduction from the carrying amount of the debt.
contingencies from a consolidation are what on the balance sheet?
An indemnification asset is recognized at acquisition-date fair value.
What measurement value should be used for an acquisition?
acquisition-date fair value.
Define Contingent Consideration
is an obligation of the acquirer to transfer additional assets or equity securities to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met.
Contingent consideration that is settled with assets is what on the balance sheet?
is classified as a liability in the financial statements.
Contingent consideration that is settled with equity securities is what on the balance sheet.
is classified as equity (i.e., additional paid-in capital) in the financial statements.
Are valuation allowance account recognized in a business consolidation?
no they are not.
Accounting for a Noncontrolling Interest (NCI)
NCI is reported separately in the equity section of the parent’s balance sheet.
According to IFRS, at the acquisition date the acquirer may measure NCIs at
(1) fair value or (2) their proportionate share of the fair value of the acquiree’s identifiable assets and liabilities.
The consolidated income statement must present separate amounts for the following:
- Total consolidated net income
- Net income attributable to the NCI
- Net income attributable to the shareholders of the parent
Retained earnings of the consolidated entity at a subsequent reporting date consist of
(1) acquisition-date retained earnings, plus
(2) the net income (loss) for the subsequent period(s) attributable to the shareholders of the parent, minus
(3) dividends paid by the parent to entities outside the consolidated entity.
The NCI must be adjusted for its proportionate share of
(1) the net income of the subsidiary included in consolidated net income,
(2) items of consolidated other comprehensive income attributable to the subsidiary, and
(3) dividends paid by the subsidiary.
in a consolidated financial statement what do you do with payables and receivables between parent and subsidiary?
Eliminate them
JE for consolidating inter-company sales of inventory
DR. Sales
CR COGS (difference)
CR. Inventory. (inventory remaining X sellers gross profit %)
When do you deconsolidate an entity
when your control slips below 50%
An entity is a VIE if it meets any of the following criteria:
- The total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support.
- As a group, the holders of the equity investment at risk have one of the following three characteristics:
a. Lack the power, through voting rights, to direct the activities that most significantly affect the entity’s economic performance.
b. Lack the obligation to absorb the entity’s expected losses.
c. Lack the right to receive the entity’s expected residual returns. - he entity is structured so that voting rights do not necessarily reflect the underlying economic reality.
What is the difference between combined vs consolidated financial statements
The consolidated financial statements include the parents financials.
Define Hedge
No possibility of future gain or loss.
Acquisition costs of stocks should be?
Expense as uncured
How should a bargain purchase be recognized in the financial statements
As a gain. you paid less than something is worth.
