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Financial Accounting and Reporting > Consolidated Financial Statements > Flashcards

Consolidated Financial Statements Flashcards

1
Q

What does Control or majority voting interest mean for consolidated financial statements ?

A

GREATER than 50% of direct or indirect ownership of another entity.

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2
Q

What should be reported as Liabilities of Consolidated FS?

A

P+S

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3
Q

Gross profit rate formula

A

Gross profit rate = Gross profit over total sales

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4
Q

For which items does only the share of parent get reported in the BS?

A

P ONLY - Dividends/Retained Earnings/Net Income/Common Stock

*Stockholder’s equity too (only if equity method of accounting is used) if they had paid with the stock, purchase price will also be added to the stockholder’s equity}

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5
Q

What is Gain from Bargain Purchase (ASC topic 810)?

A

The excess of the FV of the net assets acquired over acquisition cost is recognized as a gain from a bargain purchase in the period of acquisition.

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6
Q

When is goodwill recognized in the consolidation?

A

Goodwill is recognized during acquisition or purchase of company/business

Formula to calculate value of Goodwill or when to recognize goodwill = CV - FV

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7
Q

How to calculate NCI of a parent co. in sub at the end of the year?

A

NCI of P in Sub at the beginning of the year + (% share in sub NI of Sub) - Dividends paid by Sub NCI Share of P in %)

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8
Q

Is consolidation process carried out on the books of the parent entity? How does the process take place?

A

No. It rather takes place on worksheets and schedules that are separate from any set of books. Consolidated Financial statements report 2 or more legal entities as though they are a single economic entity.

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9
Q

What does 20% to 50% voting ownership signify?

A

Significant Influence

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10
Q

What does more than 50% voting ownership signify?

A

Control

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11
Q

How to calculate Goodwill ?

A

FV of Consideration paid by P
+ NCI FV
(-) FV of Shaw’s net assets
_____________________________________
= Goodwill

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12
Q

NCI

A

NCI recognized during consolidation
+ NCI net Income (of S)
(-) NCI dividends (S)
___________________________
NCI interest of P in S

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13
Q

Investment in Subsidiary will be _____________

A

ELIMINATED entirely in consolidation

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14
Q

NCI is shown in ______________ but not in separate unconsolidated financial statements.

A

CONSOLIDATED FIN STATEMENTS

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15
Q

In which circumstances consolidation is not required?

A

When subsidiary is in bankruptcy and when S in a foreign country where severe restrictions have been imposed by that Govt.

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16
Q

Total Owner’s equity in consolidation is calculated as :

A

P’s equity + new stock of P issued in acquisition

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17
Q

An adjustment is required to remove the payable from P’s books and the corresponding amount from the receivables on the subsidiary’s books.

A

True

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18
Q

The consolidation process requires a decrease to the SALES REVENUE of the S’s company and a corresponding decrease to the COGS of P’s company.

A

True

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19
Q

Intercompany gain will be eliminated with a credit to __________

A

INVENTORY

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20
Q

How should TOTAL ASSETS be reported in Consolidated BS

A

P + S + Goodwill (Purchase - FV of Net Assets of Sub)

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21
Q

The difference between the bond carrying amounts in the two companies would decrease

A

RETAINED EARNINGS for either the year of acquisition or a subsequent year.

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22
Q

The method used by the parent to carry on its book its investment in the subsidiary will affect the final consolidated financial statements.

A

True

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23
Q

Intercompany sales = P+S - Consolidated Revenue

A

Look at REVENUE figures

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24
Q

For intercompany, Payable :Check AR

A

P+S - Consolidated AR

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25
Q

CONSOLIDATED BS

A

Instead of Inv in Sub, include 100% of Sub’s A + L and NCI in Consolidated E

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26
Q

E - Equity of the subs Dr.
A-Subs Assets (FV>BV) net of excess dep
G-Goodwill
L-Liabilities (FV>BV)
I-Inv in Subs
N- NCI

A

JE (eliminate intercompany transactions)

Dr. AP (eliminate AP)
Cr. AR

Dr. Sales
Cr. COGS
Cr. Inventory

27
Q

Variable Interest Entity=

A

Special Purpose Entity

28
Q

Inventory is adjusted

A

ELimination of profit

Dr. RE
Cr. Inventory

29
Q

CHECK FIGURE

A

CONSOLIDATED EQUITY = PARENT EQUITY + NCI

30
Q

Dr. AP

  Cr. AR
A
31
Q

Dr. Sales
Cr. COGS
Cr. Inventory

A
32
Q

ASSETS AND LIABILITIES

A

Combine (both P + S)

33
Q

EQUITY METHOD - On parent’s books, CV of the investment in sub reflects

A
  1. Parent’s share of sub’s income or loss

Investment in Sub (B/S) XXX
Equity in Earnings (I/S) XXX

  1. Parent’s share of dividends (this is not income) declared by sub:
    Dividends receivable/cash XXX CV goes down
    Investment in Sub (B/S) XXX
  2. Amortization of any difference between the FV and CV of identifiable assets, if FV is greater than CVEquity in earnings (I/S) XXX CVgoes down
    Investment in Sub (B/S) XXX
34
Q

COST METHOD : NI and Dividends are not adjusted unlike EQUITY method

A

No need to adjust Parent’s share of Sub’s income/loss. Parent’s sh of dividends declared by sub.

JE
Dividends receivable/Cash (B/S) XXX
Dividend Income (I/S) XXX

35
Q

ACQUISITION METHOD - Under the acquisition method, the PREquisition equity of the SUB is not carried forward in an acquisition.

A

Consolidated equity will be equal to the parent’s equity balance. IN ACQUISITION METHOD, ONLY PARENT’S EQUITY IS INCLUDED IN CONSOLIDATION. Equity of SUB will be eliminated.

35
Q

INTERCOMPANY SALES

A

look into REVENUES

36
Q

Machine or asset - show at Parent’s ORIGINAL Cost

A

True (ORIGINAL COST)

37
Q

ALl intercompany transactions will be eliminated

A

True

38
Q

Subsidiary will report its own payable and it will be eliminated from CONSOLIDATED BALANCE SHEET

A

TRUE

39
Q

Remove Intercompany profit transaction from INVENTORY

A

TRUE

40
Q

INTERCOMPANY PROFIT ELIMINATION

A

CALCULATE FROM INVENTORY (P+S-Consolidated)

41
Q

Payable to Pard for intercompany sales

A

AR

42
Q

UNADJUSTED REVENUE

A

ELIMINATE

43
Q

Intercompany sales

A

Revenue

44
Q

NCI

A

NCI ownership amount/Sub’s Equity

45
Q

Selling Expenses

A

P+S - Intercompany selling expenses

46
Q

Dividends declared by the parent are reduced by a subsidiary’s percent ownership in the parent

A

True

47
Q

The difference between the bond carrying amounts in the 2 companies would decrease ____________ for either the year of acquisition or a subsequent year

A

RETAINED EARNINGS

(and, if financial statements were being prepared for the current year, the loss would be reported as an ordinary loss on the income statement) This loss would be carried through to the consolidated balance sheet as a decrease in RE. In subsequent years, the unamortized portion of the loss would also decrease RE.

48
Q

CONSOLIDATION

A

GREATER than 50% of the directly or indirectly owned outstanding voting shares of another entity

49
Q

Unrealized intercompany profit

A

Revenue - COGS

50
Q

Only NCI dividends are reported on the consolidated balance sheet

A

True (100% owned SUB dividend to be eliminated completely)

51
Q

NCI in net assets

A

Start from FV of NCI
+ share of NCI % of NI of SUb
- share of NCI % of SUb’s Dividend

52
Q

Goodwill will be recognized if ______

A

COST of the investment in the SUB exceeded the FV of all net assets acquired

53
Q

Difference between OLD Depreciation and NEW Depreciation Divided by Original Gain

A

Difference in Dep/Gain

54
Q

Intercompany receivables and payables are not eliminated unless consolidated fin statsments are prepared.

A

Since Pare only has a 15% int in Sub, consolidated fin statements would not be prepared. Report payable separately

55
Q

Equity vs. Consolidation

A

Equity - do not consider NI of SUB
Consolidation - COnsider NI of SUB as well

56
Q

No NCI interest which means own 100% of sub

A

Report RE only of parent’s

57
Q

Cost method = FV method

A

parent will recognize parent’s share of sub’s DIVIDENDS only

58
Q

CV of inventory of SUb purchased from Parent

A

Look into revenue amounts provided (Revenue of P+S - Consolidated revenue)

59
Q

Eliminating entry following an intercompany sale of a fixed asset at a gain

A

Fixed Asset Dr. XX
Gain Dr. (to eliminate inter co. gain) XX
Accu Dep. Cr. XX

60
Q

Eliminate inter company profit

A

COGS XX
Ending Inventory XX

61
Q

Summary of significant accounting policies is typically the first ______

A

Footnote

62
Q

Elimination entry - Depreciation

A

Gain on sale XX
AD (sub dep) XX
Dep (excess) XX
Equipment (original cost - SP) XX

Financial Accounting and Reporting (31 decks)

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