consolidation at acquisition

Question 1

Business combinations

Answer 1

buss combination must be accounted for using the acquisition method of accounting

Question 2

consolidated Bal sheet

Answer 2

at the date of acquisition

Parent and Subsidiary + FV increment

Question 3

Consolidated IS/RE/CF

Answer 3

Income Statement Parent entire year.
Statement f Retained Earning (Parent only
Statement of cash flow (Parent entire year)

Question 4

Carrying Invest in subsidiary

Answer 4

ad the date of combination the method used by parent is Not a consideration because there is no carrying period yet. (any excess purchase price will be attributed to Goodwil)

Question 5

Process steps to consolidation

Answer 5

1.- Record Trial Bal-Record titles and bal on Wksh to separate companies that are being consolidated
2.-Adjusting entries:any transc not recorded by one and recongnized by the other co it is in transit to the receiving company. exp AP payable at ye by one but not recognized by the other one.
Divd declared by one(subsd) at ye but not recognized by the receiv (parent)
b-Rule
c- Posting adj entries: posted to the separate co books as a result of actual completion of in transit transc
4.- Eliminating Entries

Question 6

Rule to handle in transit

Answer 6

to handle in transit ico transt, is to make adj entry on the consolidating wksh to complet the transc as though it had been rcvd by the receving co

Question 7

eliminating Entries

Answer 7

1. -Investment elimination entries (REQUIRED)

2. -Intercompany receivables/payables eliminations

Question 8

Investment elimination entry

Entry when parent owns 100% of subsidiary

Answer 8

The investment elimination is REQUIRED to eliminate the investment in the subsidiary account by the parent against the subsd shareholdes equity

a. - Avoids double counting
b. -Entry when parent owns 100% of subsidiary. exp when there is no noncontrolling interest

DR Common Stock (of subsidiary)
Additional Paid in Cap (of subsidiary)
RE (of subsidiary)
Identifiable assets (of subsid to FV as needed)
goodwill (if investm cost is more than FV sub NA)
CR Identifiable Liabilities (of subsidiary to FV as needed)
Investm in subsidiary (from parent’s books)
In this exp if an A & L had a FV less than book value the A or L will be written down to FV.
If depreciable asst increase at the date of puch, no impairment assessment is required
Goodwil will be debited if the Investment value is greater than the FV and no impairment is required

Question 9

Investment value

Answer 9

is the fair value of consideration paid by the acquirer(parent)to acquire the subsidiary plus the fair value of the noncontrolling interest at the acquisition date. If GW was recognized at the date of acquisition noassesment of impairment is required

Question 10

Entry when parent owns less than 100% of subsidiary

Answer 10

subsidiarie’s sharehl equity not owned by the parent directly or indirectly belongs to the noncontrolling interest.
It is the noncontrolling interes (minority) claim to consolidate Net assets attributable to the subsidiary, which assets are at FV and the full FV of any goodwil regognized on the acquisition. Expl
DR: Common stock (of subsidiary)
Addtl paid in Cap (of Subsidiary)
RE of Subsidiary
Identifiable asstes (of subsidiary to FV as needed)
Goodwill(if investment value>FV of subsidiary’s NA)
CR: Identifiable Liabilities (of subsidiary to FV, as need)
Investm in subsidiary (from parents books)
Noncontrolling Interes (%claim to consolidated NA
attributable to the subsidiary)
THE NONCONTROLLIN INTEREST ACCT WILL SHOW ON THE CONSOLIDATE BAL SH AS A SEPARATE ITEM WITHING THE SHAREHOLDES’S EQUITY

Question 11

Intercompany AR/AP Elimination

Dividends

Answer 11

All intercompany AR and AP must be eliminated at the date of the combination.  Exp 
Co P /AR from S=$10000
Co S AP/ paybl to Co P= 10000
 Eliminating entry:
DR Pyble to P       10,000
      CR AR from S                $10000
Interest receivable /pybla similar entry should be perform
Dividends must also be eliminated  Exp
  Company/Dividend Recbl (form Co S) = 5000
  Company S/ dividentd payable = 100000
JE on the Wksh
  DR: dividends Payable    5,000
       CR Dividends Recivable       5000

Question 12

Bonds

Answer 12

Investments in bonds/bonds payable , issued by one affiliate and held by another afiliate must be elimianted against ea other Exp

Co P /Investments in S Bonds = 100,000
Co S/Bonds Payable at par = 1,000,000

Eliminating entry: on the consolidating wksh
DR Bonds payable $100,000
CR: Investment in bonds
Premiums or discounts would also had been eliminated

Question 13

complete worksheet and formal consolidated Statements

Answer 13

after the adjusting and eliminating entries have been posted the wk sheet is complete. Prepare formal consolidated statements.

Question 14

In a business combination how to calculate the COMMON STOCK of the combine business combination

Answer 14

Common stock of the combine(PARENT) entity is the NUMBER OF SHARES OUTSTANDING X BY THE PAR VALUE OF THE STOCK

Question 15

n a business combination how to calculate the PAID IN CAPITAL of the combine business combination

Answer 15

the number of shares issued multiplied by the MARKET PRICE of the stock plus the ADPIC of the parent company

Question 16

methods that change the carrying value of the investments following the combination

Answer 16

if parent uses equity method to carry the investment in a subsidiary in its books, THE CARRING VALUE WILL CHANGE AS THE EQUITY OF THE SUBSIDIARY CHANGES, but if the cost method is used the carrying value on its books normally will not change

Question 17

GW

Answer 17

GW previously recognized by the acquired entity as an intangible asset SHOULD NOTbe recognized by the acquiring entity. Any GW will be will be determined by the acquirer as the excess of its cost of invt over the FV of the acquiree’s net assets(will be deducted from the subd NA)

Question 18

PPE- Invetories

Answer 18

the excess of FV (mkt) of PPE over book value would NOT recognized as GW on a consolidated Bl sheet. It will be treated as PPE