Chapter 5: Consolidation, less-than-wholly-owned, acquired with differential

Question 1

Basic consolidation entry (not-wholly-owned subsidiary purchased with differential)

Answer 1

Equity accounts

Subsidiary Common Stock
Subsidiary Retained earnings (beginning)
Income from subsidiary (Parent’s portion of NI declared)
NCI in NI of subsidiary (NCI portion of NI declared)
Subsidiary dividends declared
Investment in Subsidiary (Parents portion of book value)
NCI in Net Assets of Subsidiary (NCI portion of book value)

Removes book value section of parent and adds NCI

Question 2

Total subsidiary FV with differential and partial ownership

Answer 2

= FV of parent consideration + FV of the NCI

(less total book value net assets = total differential)

Question 3

Assigning differential of a less-than-wholly owned subsidiary

Answer 3

Simply proportional

Total differential =
Excess FV * % owned = share of excess FC
Goodwill * % owned = share of goodwill

Question 4

Consolidation entries balance sheet ON ACQUISITION (not-wholly-owned subsidiary purchased with differential)

Answer 4

1) Subsidiary’s equity removed vs Parent Investment in NCI and Net Assets of Sub (proportional book value)

2) Excess value reclassification from NCI + parent share of differential to assets (and goodwill)

3) Accumulated depreciation entry

On acquisition = no income to consider yet

Question 5

Equity entries for parent of not-wholly-owned subsidiary purchased with differential

Answer 5

1) recognize proportionate share of subsidiary’s net income
2) recognize proportionate share of any dividends declared by subsidiary
3) write off PROPORTIONATE share of any amortized excess acquisition price (such as inventory excess value sold, depreciated assets, excess FV of assets disposed of, goodwill impairment

Question 6

Consolidation entries (not-wholly-owned subsidiary purchased with differential)

Answer 6

1) basic entry (adjusts equity + investments incl equity method income recognized)
2) amortized excess value reclassification entry (adjusted amortized amount to income statement accounts)
3) Excess value reclassification entry (adjusts remaining differential to balance sheet accounts)
4) accumulated depreciation of acquisition entry

Question 7

Consolidated statement of retained earnings with NCI

Answer 7

NO CHANGE FOR NCI

Question 8

Consolidated income statement with NCI

Answer 8

Subtotal consolidated net income
Subtract NCI in net income
= controlling interest net income

Question 9

Consolidated balance sheet with NCI

Answer 9

NCI in Net Assets of Subsidiary ADDED to total liabilities and equity section (at end of equity section) to get total liability and equity

Question 10

Rows Potentially added to consolidation worksheet (not-wholly-owned subsidiary purchased with differential)

Answer 10

Income statement:
- impairment loss if applicable
- NCI in net income of Subsidiary

Statement of retained earnings: none

Balance sheet:
- goodwill if applicable
- NCI in net assets of subsidiary

Question 11

Amortized excess value reclassification entry (not-wholly-owned subsidiary purchased with differential)

Answer 11

INCOME STATEMENT ACCOUNTS

DR Any item to be amortized full amounts of FV (parent & NCI %)
Excess value inventory sold/ assets disposed of
Depreciation expense
Goodwill impairment
CR Income from subsidiary (parent proportion = parent journal entry)
CR NCI in net income of subsidiary

Question 12

Excess value reclassification entry (not-wholly-owned subsidiary purchased with differential)

Answer 12

BALANCE SHEET ACCOUNTS

DR Remaining excess value for any asset items to FV - accounting for changes during the year
CR Accumulated depreciation attributed to excess FV AFTER Acquisition
CR investment in subsidiary (parent %)
CR NCI in net assets of sub (NCI %)

adjusting the balance sheet accounts to amortized acquisition date fair value
Remember assets stay at historical cost and accumulated depreciation changes

Question 13

Consolidated net income calculation (not-wholly-owned subsidiary purchased with differential)

Answer 13

Parent operating income (separate from subsidiary)
+ Subsidiary net income
- any differential write off/ amortization / impairment
= consolidated net income
- NCI interest in net income (= NCI% of subsidiary net income - NCI % of total differential write off amounts)
= infcome from controlling interest

Question 14

Consolidated retained earnings (not-wholly-owned subsidiary purchased with differential)

Answer 14

Parent beginning retained earnings
+ income to controlling interest (from consolidation)
- dividends declared by parent
= ending consolidated retained earnings

Year 2 forward must start from consolidated RE from previous year (though it should = parent beg retained earnings)

Question 15

When to discontinue consolidation

Answer 15

If parent can no longer exercise control over subsidiary
- parent sells interest
- subsidiary issues additional common stock
- parent agrees to relinquish control
- subsidiary comes under control of government/ regulator

Question 16

Other comprehensive income consolidation entry with NCI

Answer 16

Remove parent’s OCI from sub and OCI to the NCI against Parent investment in Sub and NCI interest in net assets of sub (balance sheet accounts)

DR and CR will depend on if OCI is gain or loss

Question 17

AOCI on consolidated balance sheet with NCI

Answer 17

Must deduct NCI portion of OCI to arrive at consolidated OCI

may be included in consolidated statements in multiple FASB approved methods

(book puts AOCI in balance sheet and has consolidated statement of comprehensive income)

Question 18

Consolidated statement of comprehensive income with NCI

Answer 18

Consolidated net income (Before NCI removed)
+/- other comprehensive income (listed out)
= total comprehensive incomme
- comprehensive income attributed to NCI (income % + OCI %)
= comprehensive income attributed to controlling interest

AOCI on balance sheet = comprehensive income attributed to controlling interest - income to controling interest

Question 19

Accounting if parent no longer holds equity interest in subsidiary

Answer 19

• discontinue consolidation
• discontinue equity method
• recognize gain or loss from event leading to loss of control (based on proceeds vs equity interest carrying amount)

Question 20

Accounting if parent loses control of subsidiary but maintains equity interest

Answer 20

• discontinue consolidation
• recognize gain or loss at date control was lost (based on difference between: (sum of proceeds received by parent + FV of remaining equity interest) - carrying amount of parent’s total interest in subsidiary)

DR cash
DR loss or CR Gain
CR investment in subsidiary

Question 21

Parent adjusting entry for subsidiary OCI

Answer 21

Recognizes share of unrealized gain or loss in equity style entry

DR investment in sub
CR proportional gain
or
DR Proportional loss
CR investment in sub

Question 22

Treatment of OCI when consolidating

Answer 22

Add comprehensive income section at end of consolidation worksheet (after equity)
- parent recognizes proportion of gain or loss on their books
- additional consolidation entry to remove parent’s OCI from sub, and add OCI to NCI against parent’s investment in sub and NCI in NA of subsidiary
- accumulated OCI added to equity section of consolidated balance sheet

Must disclose allocation of AOCI in notes