Consolidations Flashcards
Do intercompany receivables appear on a consolidated balance sheet?
No, they would be eliminated in the consolidation process
Consolidations
a reporting procedure in which the financial statements of the parent and the subsidiary are combined. The financial statements are prepared by the parent, not by the subsidiary. Consolidation is a reporting procedure only. It does not affect the accounting records of either the parent or the subsidiary.
Intercompany
An intercompany transaction occurs between members of the same commonly controlled group of entities (e.g., sales or loans made between parent and subsidiary or between two subsidiaries of the same parent).
Intercompany transactions and profits must be eliminated from consolidated financial statements.
Subsidiary
A subsidiary is a corporation controlled, directly or indirectly, by another (parent) corporation where the control is usually by ownership of a majority (greater than 50%) of the outstanding voting stock. Power to control may also exist with a lesser percentage of ownership (i.e., by contract, lease, agreement with other stockholders, or court decree). A subsidiary may be consolidated or unconsolidated with the parent for reporting purposes (FASB ASC 810-10-20) but is usually accounted for by the parent by the equity method.
Intracompany
between components of a single entity and does not invoice another entity. Would not affect combined income
Goodwill should be recognized in BS at which points
FASB only permit recognition of Good will in a purchase context.
Non controlling interest
portion of equity(net assets) in a subsidiary not attributable to a parent.
appears in the owners’ equity section on the balance sheet.
consolidated amounts of which items must be reported on the income statements
Revenues, expenses, gains,losses, net income or loss, and other comprehensive income. the amount of consolidated net income attributable to the parent and to the non controlling interest must be clearly identified and presented on the face of the consolidated statement of income.
- identify the acquirer,
- determine the acquisition date,
- recognize and measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquire, and
- recognize and measure goodwill or a gain from a bargain purchase.
Acquisition method
Two ways to compute net assets
- book values of stock of equity
2. book value of assets less book value of liabilities.
For purposes of consolidating financial interests, a majority voting interest is deemed to be
greater than 50% of of the directly or indirectly owned outstanding voting shares of another entity
total stock holders’ equity accounts on the consolidated balance sheet equals the total stockholders’ equity of the parent plus the what
non controlling interest
gain consolidated entity would increase consolidated retained earnings,
non effect on non-controlling interest if the gain is identified with the issuer of the bonds.
in accounting for business combinations, the stockholders equity of the acquired entity is eliminated against the investment account. the result is
the consolidated retained earnings include only the retained earnings of the parent company.
when subsidiary pays a dividend, what the effects on the parents company’s retained earnings and noncontrolling interest
no effect on retained earnings because consolidated retained earnings include only RE of the parent company.
Since NCI is a percentage of the SE of the subsidiary, dividend declaration will decrease NCI.
