Consolidated Financial Statements pg 82

Question 1

Exception to Consolidation FS

Answer 1

1. If investor is prevented from exercising majority ownership due to foreign subsidiary largely controlled by foreign gov’t though prohibition on paying dividends/control day to day operations OR Domestic sub in bankruptcy under control of courts
2. Certain entities are precluded from consolidating controlled entities by industry-specific guidelines including registered investment companies AND brokers/dealers in securities
3. Variable-interest/subsidiary NOT included in consolidated statements would be reported as “Investment” by interest-holder/investor

Question 2

The method parent uses to carry an “investment” in subsidiary on its books…(Cost, Equity, Other)

Answer 2

WILL AFFECT ONLY consolidating process (entires)

WILL NOT AFFECT final resulting Consolidated Statements

Question 3

Info Requirements in order to consolidate FS

Answer 3

1.FS (or adj trial balances) of separate affiliated entities to be consolidated
2.Data as of date of business combo (acquisition date)
>BV assets acquired/liabilities assumed as of AD
>FV assets acquired/liabilities assumed as of AD
>FV noncontrolling interest in acquired entity as of AD
>FV of any equity interest in acquired entity owned by
parent prior to AD
3. Intercompany transaction data and intercompany balances as of period end

Question 4

Consolidating Process

Answer 4

• -Carried out on consolidating worksheet not on books of entity
  1. Basic info for WS comes from acct balances of separate entities
  2. Consolidating process primarily concerned w/ adj and eliminating those balances to develop info would report separate entities as thought they were single entity
  3. Process and results of process are not recorded on books of any of affiliated entities
  4. Result of process is full set of CFS

Question 5

Basic Sequence of Consolidating Steps

Answer 5

1. Record Trial Balance (acct title and balances)
2. Record Adjusting Entries
3. Record Eliminating Entries (investment/intercompany)
4. Complete consolidating worksheet
5. Prepare formal consolidated FS from worksheet

Question 6

Factors Effecting Consolidation Process

Answer 6

1. Consolidating process carried out @ date of business combo or subsequent date
2. Parent owns 100% of all voting stock or less than
3. On parent books carries its investment in subsidiary using cost or equity method of accounting
4. Transactions b/w affiliated entities originate w/ parent or w/ subsidiary

Question 7

Noncontrolling Interest Account

Answer 7

Will show on consolidated BS as separate item w/in shareholders’ equity

Question 8

If Using Equity Method for Subsidiary

Answer 8

-Parent adj on its book the CV of its investment in sub to reflect:
1. Parent’s share of income/loss of sub
DR Investment in Sub CR Income from Equity Investment
2. Parent’s share of dividends declared by sub
DR Dividends Rec/Cash CR Investment in sub
3. If any diff b/w FV & BV of identifiable assets due to depreciation/amortization
DR Income from Equity Investment CR Investment in Sub

Question 9

If Using Cost Method for Subsidiary

Answer 9

• Parent DOES NOT adj on its books CV of its investment in subsidiary to reflect
  1. Parent’s share of sub income/loss
  2. Parent’s share of dividends declared by sub
  3. “Depreciation”/amortizatoin of diff b/w FV of sub identifiable net assets and BV of them

–DOES recognize share of dividends declared by sub as dividend income (NOT adj to investment acct)
DR Dividends Receivable/Cash CR Dividend Income

Question 10

Noncontrolling Interest on Consolidated Income Statement

Answer 10

"Income to Noncontrolling Interest"
=Sub Net Income
-Depreciation/Amortization of Dfferential
-Goodwill Impairment Loss
= Sub Adj Net Income
* NCI % Ownership
=Income to NCI

Question 11

Noncontrolling Interest on Consolidate Balance Sheets (NCI Equity)

Answer 11

“Noncontrolling Interest Equity”

=Sub net book value (Beg NBV + NI - Dividends)
+ 100% Differential (from paid to what got)
-Goodwill Impairment Loss
-Depreciation/Amortization of Differential
=Sub Adj NBV
* NCI % Ownership
=NCI