Consolidated F/S Flashcards
Acctng for Investment in Equity Securities
0-20%: No control or sign influence. Fair Value through net income
>20%: Sign Influence. Indicates investor has sign influence over the investee
>50%: Control: Investors have control over investee. Equity method during year and consolidate during YE
Consolidation Criteria
All Subs must be consolidated unless:
1. Sign doubt regarding the parent’s ability to control
2. Sub is in bankruptcy, legal reorg, or under severe foreign restrictions
Parent’s YE is not equal to Sub
YE diff is more than 3 months:
~ Sub must prep special f/s that correspond to parent’s f/s
YE diff is less than 3 month:
~ Sub can use their regular f/s
~ Must make material adjs for any sign trans or events that occurred during the gap period
If parent own more than 50% of a sub and the sub owns more than 50% of another co: 1st sub will consolidate w/ the 2nd co. The parent will consolidate with the sub
Steps in BS Consolidation
- Calc GW / Bargain purchase
- Elimination of inter-co transactions
- Calc the increase in FV
- Calc Parents R/E
- Cal Non-Controlling interest (NCI)
- Cal Investment in Sub
- Consolidate the Sub’s Assets & Liabs
- Prepare Consolidated B/S
Calc GW / Bargain Purchase
Market Capitalization Method: FV of company at acquisition = # of shares of sub x market price of sub’s share at acquisition date
Purchase Price Method: FV of company at acquisition = purchase price of investment in sub / ownership %
FV of Company’s Net Assets at Acquisition
FV of co’s net assets = FV of Assets - FV of Liabilities
FV of co’s net assets = Common Stock + APIC + R/E
Determine GW
FV of Co at Acquisition XX
Less: FV of Co’s Identifiable Net Assets @ Acquisition XX
Equals GoodWill
Determine Bargain Purchase
FV of Company’s Identifiable Net Assets @ Acquisition XX
Less: FV of Co at Acquisition XX
Equals Bargain Purchase
Elimination Entries
Interco A/R and A/P
DR. Parent AP
CR. Sub AR
Interco Sales/Purchases w/ all the inventory sold
DR. Sales
CR. Cost of Sales
Interco Sales/Purchases w/ some inventory unsold and unrealized profit
DR. Sales
CR. Cost of sales
CR. Inventory
The impact on the B/S from this elimination
DR. R/E
CR. Inventory
Elimination Entries
Interco Sales of PPE
DR. Asset
DR. Gain on Disposal
CR. A/D
DR. A/D
CR. Deprec Exp
Interco of Sales of Bonds
DR. Bonds Payable
CR. Investment in Bonds
DR. Interest Income
CR. Interest Expense
DR. Interest Payable
CR. Interest Receivable