consolidated financial statements

Question 1

objective. and what’s control

Answer 1

to report as one entity. 50% ownership and primary beneficiary of a vie

Question 2

consolidation is only used for what type of business combination?

Answer 2

acquisitions

Question 3

when to not consolidate

Answer 3

subsidiary is controlled by foreign gov
domestic subsidiary in bankruptcy
vie holder not primary beneficiary

Question 4

what’s the point in using the decomposition tool?

Answer 4

to find gw

Question 5

when we are making consolidating financials we want everything to be on the balance sheet at

Answer 5

fair value

Question 6

why do we delete the investment in subsidiary account on the balance sheet? what’s the je?

Answer 6

because the price that we paid (investment) is really representing the equity in subsidiary we are buying. je

cs 140
re 10
gw 30
excess fv of equip 20
Investment 200

Question 7

why do we eliminate the investment in sub account?

Answer 7

Because you can’t have an investment in yourself

Question 8

parent can account for investment in subsidiary two ways. what are the two methods?

Answer 8

equity method and cost method

Question 9

parent adjusts investment for sub subsequent to acquisition in 3 ways using the equity method. they do not make these adjustments using the cost method. only time cost method investment in sub will change is if there is a liquidating dividend

Answer 9

parents share of sub’s income or loss

parents share of dividend declared

amortization of difference between fv of investment and book value of net assets acquired.

Question 10

investment is S is comprised of

Answer 10

initial investment +p’s share of s’s ni - p’s share of s’s dividends - depn/amort of purchase price differential.

Question 11

income from investment in S

Answer 11

p’s share of s’s NI - depn/amort of price differential

Question 12

if investment in S and Income from S both get eliminated on the consolidated Financial statements, then how do they make up for it?

Answer 12

They make up for it with GW, Fv adjustments.

Question 13

Calculation of NCI equity

Answer 13

s's NBV at end of year (nci equity +income)
\+100% of differential
less depn/amort
less gw impairment loss
=s's adj nbv
times nci% ownership of s
=nci equity

Question 14

calculation of NCI Income

Answer 14

s's Net Income
less cy depn/amort
less cy gw impairment
=s's adj ni
times NCI %
= income to NCI

or

NCI Equity at the beginning of the year*
Plus: NCI % of S’s Net Income
Less: NCI % of S’s dividends
Less: NCI % of Goodwill impairment loss
Less: NCI %Depreciation / amortization of differential
NCI Equity at the end of the year

Question 15

why do we have NCI income and equity?

Answer 15

because on the financials we report everything as 100% acquired, and then on the bottom of the statements we subtract out the NCI%.

Question 16

decomposition tool for eliminating intracompany transactions for inventory

Answer 16

should be   what is       difference
                                      p       s
sales
cogs
inventory

Question 17

cost method does

Answer 17

DOES NOT adjust on its books the carrying value of its investment in the subsidiary to reflect:

1. The parent’s share of the subsidiary’s income or loss;
2. The parent’s share of dividends declared by the subsidiary;
3. The “depreciation”/amortization of any difference between the fair value of the subsidiary’s identifiable net assets and the book value of the subsidiary’s identifiable net assets

DOES recognize its share of dividends declared by the subsidiary as dividend income. (not as an adjustment to the investment account)
1.	
Example entry  -- 
DR:	Dividends Receivable/Cash
      CR:Dividend Income