Equity and Intercompany transactions Flashcards
consolidated income
owns 80%
Parent’s net income 240,000
Less: equity in sub’s income (60,000)
Parent’s income only 180,000
Sub’s income 75,000
Percentage 80%
Sub’s income (parent’s share) 60,000
Less: Goodwill impairment 0
consolidated Net income 240,000
comprehensive income
= NI
+ OCI
escrow liability
Dr…………………………………………………………………….Cr.
… beg balance
…. escrow payment received
taxes paid ….
… interest paid(less10%)
……………………………………………………………………………………………
end balance
deferred tax asset valuation account JE
Dr. income tax expense
Cr. deferred tax asset valuation
if they say current maturity at end of year 2
it means principal payment due in the third year
which will not have diff earning per share
1) extra ordinary items
2) discontinued g/l
3) unrealized g/l AFS security
Extraordinary items are no longer recognized under U.S. GAAP.
Only discontinued operations have separate earnings per share calculations and disclosures.
Unrealized gains and losses on available-for-sale securities are part of other comprehensive income. Other comprehensive income items are direct charges to stockholders’ equity and do not affect net income. They have no earnings per share calculations and disclosures.
Income taxes
total taxes = current liabiltiy + deffered liability
current liability = taxable income * current rate
deffered liability = temp difference * future(Enacted) rate
stock dividends
effect on RE
small stock dividends <20-25%
shares * FMV ( reduced from RE)
large dividend ( >20- 25%) Shares* par value ( reduced from RE)
Stock prices
principle market known
and principle market unknown
when principle market known - take the quoted price
when principle market is unknown look at the most advantageous market to select the advantageous market ***quoted price - transaction cost which ever market has the most in *** , take that markets quoted price ( not the calculated price)
Intercompany sales
elimination of
intercompany sales , cost of good sold, profit
company A sells to company B
sales = 100, cogs = 60 ( from A to B)
decrease company A’s sale
A’s COGS by 60
B’s COGS by 40 ( if all sold to thrid company )
from Ending inventory ( if inventory left)
JE when acquired >50% through CS and had legal fees and registration fee
Dr. Investment in XYZ
Dr. Legal fees
Cr. Common Stock
Cr. APIC ( apic - registration fee)
Cr. Cash (legal fees +registation fee)
in equity
effect in investment and income
when there is income
Dr. Investment
Cr. Equity in earnings
when there is depreciation
Dr. Equity in earnings
Cr. Investment
when there is dividend
Dr. Cash
Cr. Investment
intercompany bond transaction
$100,000 increase in consolidated earnings. $0 effect on noncontrolling interest. The purchase of the parent company bond by the subsidiary is treated as if the bond were retired when the financial statements are consolidated. Because the bond had a book value of $1,075,000, but was “retired” for $975,000, a gain is recorded upon consolidation.
Journal entry on consolidated worksheet Debit (Dr) Credit (Cr) Bond premium Bond premium (Palmer's books) $75,000
Bond payable (Palmer's books) 1,000,000
Bond investment (Seal's books) 975,000
Retained earnings - consolidated
100,000
Noncontrolling interest
0
Noncontrolling interest is only adjusted if the bonds were originally issued by the subsidiary and, as a result, a portion of the gain must be allocated to the noncontrolling interest. In this problem, the parent issued the bonds, so the elimination has no impact on noncontrolling interest.
