Chapter 5: Consolidation, less-than-wholly-owned, acquired with differential Flashcards
Basic consolidation entry (not-wholly-owned subsidiary purchased with differential)
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
Total subsidiary FV with differential and partial ownership
= FV of parent consideration + FV of the NCI
(less total book value net assets = total differential)
Assigning differential of a less-than-wholly owned subsidiary
Simply proportional
Total differential =
Excess FV * % owned = share of excess FC
Goodwill * % owned = share of goodwill
Consolidation entries balance sheet ON ACQUISITION (not-wholly-owned subsidiary purchased with differential)
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
Equity entries for parent of not-wholly-owned subsidiary purchased with differential
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
Consolidation entries (not-wholly-owned subsidiary purchased with differential)
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
Consolidated statement of retained earnings with NCI
NO CHANGE FOR NCI
Consolidated income statement with NCI
Subtotal consolidated net income
Subtract NCI in net income
= controlling interest net income
Consolidated balance sheet with NCI
NCI in Net Assets of Subsidiary ADDED to total liabilities and equity section (at end of equity section) to get total liability and equity
Rows Potentially added to consolidation worksheet (not-wholly-owned subsidiary purchased with differential)
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
Amortized excess value reclassification entry (not-wholly-owned subsidiary purchased with differential)
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
Excess value reclassification entry (not-wholly-owned subsidiary purchased with differential)
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
Consolidated net income calculation (not-wholly-owned subsidiary purchased with differential)
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
Consolidated retained earnings (not-wholly-owned subsidiary purchased with differential)
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)
When to discontinue consolidation
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
Other comprehensive income consolidation entry with NCI
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
AOCI on consolidated balance sheet with NCI
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)
Consolidated statement of comprehensive income with NCI
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
Accounting if parent no longer holds equity interest in subsidiary
- discontinue consolidation
- discontinue equity method
- recognize gain or loss from event leading to loss of control (based on proceeds vs equity interest carrying amount)
Accounting if parent loses control of subsidiary but maintains equity interest
- 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
Parent adjusting entry for subsidiary OCI
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
Treatment of OCI when consolidating
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
