CONSOLIDATED FINANCIAL STATEMENTS Flashcards
In business combination assets acquired and liabilities must be recognized
at the acquisition date fair value
When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of
Economic entity
When are consolidated financial statements required?
When the parent company owns direct or indirectly more than 50% of the outstanding voting interests of another entity
What are the direct acquisition related costs?
Professional
Consulting fees
General Administrative costs
expensed as incurred
Calc, the additional paid in capital for the capital combination with the direct insurance cost?
200,000 x 12 market value - 5 par value = 1,400,000 - direct insurance cost 35,000
= 1,365,000 APIC for the business combination
Are debt issues costs of equity required to be subtracted to calc consolidated net income?
No because debt related costs are debited to APIC
Also the debt cost are deducted from the carrying amount of the debt and amortized
How are acquisition related costs such as finders fees, professional and consulting fees, and general administrative costs treated ?
expensed as incurred
However if the acquisition is group related than the direct acquisition are allocated on a pro rate basis to the assets acquired
Calc, the goodwill resulting from the business combination using the acquisition method?
REMEMBER WHEN WE CALC GOODWILL UNDER THE ACQUISITION METHOD WE USE THE FAIR VALUE EXCHANGES
We start off with the amount of
Cash 60,000 Inventory 150,000 Equipment 180,000 Liabilities (120,000)
= 470,000
Goodwill 620,000 - 470,000 = 150,000 goodwill from resulting from the business combination
Calc, current liabilities for the consolidated balance sheet?
Current liab of Par 30,000
Current liab of Sev 10,000
Current com of new 6,000
= Current liabilities equal to 46,000
Calc, the noncurrent liabilties for the consolidated balance sheet?
Noncurrent liabilities (given) 50,000
Noncurrent component
54,000. (60,000 x 10%) = 6000
= 104,000
60,000 / 90% = 66,667 x 10% = 6,667
= 104,000 + 6,667 = 110,667
what is Non-controling interest?
basically when a shareholder holds less than 50% of outstanding stock and doesn’t have no control over decisions
Ex - would be a Parent company owning most of the stock of the company while the subsidiary owns 20%
In the consolidated financial statements of the parent and its 90% owned subsidiary
Comprehensive income or loss attributable to the parent and the non-controling interest is reported at separate amounts b/c the subsidiary don’t have much control
Calc, the amount peace report as dividends declared and paid it’s current years consolidated statement of changes in equity?
Dividends paid by parent 15,000
Dividends paid by subsidiary
8000
8000 x 75% = (6,000)
15,000 + 8000 - 6000 = 17,000 Consolidated dividends paid
Reciprocal Dividends for parents, sub and unrelated party?
Dividends
Parents dividends to subsidiary the consolidated treatment is eliminate
Subsidiary dividends to Parent the consolidated treatment is eliminate
Parent dividends to third parties consolidated treatment reduces retained earnings
subsidiary’s dividends to third parties consolidated treatment is reduces NCI
Do subsidiary companies record gains?
No they don’t rather the parent company does on the consolidated financial statement
For a consolidated balance sheet are receivable and payable between the parent and the sub prior the creation of the consolidated statement?
Yes Receivable & payable are eliminated
When a parent company sells to another subsidiary of goods and later the subsidiary sells those goods to unrelated party how is that recorded on the consolidated financial statements?
The COGS and the sales are reduced by the intraentity sale made by the subsidiary to the unrelated party
Calc, the consolidated income statement cost of goods sold?
Park - Gross Profit 2,000,000 / 1,200,000 = 60%
500,000 sales x 1/5 = 100,000
100,000 x 60% = 60,000
500,000 sales - 60,000 = 440,000 Cost of goods sold
Calc, the unrealized intraetity profit in ending inventory dec 31 should be eliminated in consolidation?
Lee sold the merchandise 100,000 / 1/2 = 50,000 x 40% = 20,000 unrealized intraentity gross profit
Calc, the amount of unrealized intraentity profit eliminated?
Mussel Inventory
60,000 + 50,000 - consolidated 104,000 = 6,000
Calc, the earnings reported for the subsidiary and the parent only income?
To calc the earnings reported for the subsidiary
Investment in Styles equity method which is 132,000 - purchase price of 120,000 + the 4,000 share of the dividends
5,000 x 80% = 4000 dividends
Calc, consolidated net income with no adjustment made?
NI Parent before acquisition date 750,000
NI Parent acquisition 825,000
NI income of subsidiary acquisition date 375,000
unrealized intraentity gross profit (45,000)
750,000 + 825,000 + 375,000 - 45,000 = 1,905,000
When a problem has no adjustment made that means we don’t need to eliminate the entries for the calculation
Formula for Quick Ratio?
Quick ratio = Cash & Cash equivalents + marketable securities + net receivables / current liabilities
here we want to see if Microsoft can pay it’s short term obgligation
Will selling inventory on account increase current ratio?
Yes it will increase both current assets and decrease to the current liability
For Current Assets it would increase AR
