F4 M4 Flashcards
Acquisition of sub in cash: Debit investment and credit cash
Acquisition of sub in stock: Debit investment and credit APIC and CS
On the day that the acquisition (stock given) to buy the sub takes place, always multiply
the stock x the FV to record the price of the investment (the parent’s basis is the
acquisition price)
Acquisition price (FV) = investment in sub
When the consolidation takes place, 100% of the net assets acquired (regardless of %
acquired) are recorded at FV with any unallocated balance remaining creating goodwill
Eliminating JEs (of the sub) are recorded on the consolidation workpapers
CAR (all debits) IN (both credits) BIG (all debits)
CAR = CS, APIC, and RE (debit each of these in the EJEs)
IN = Investment in sub (eliminated on parent’s BS) and noncontrolling interest is created
(recorded at FV)
Noncontrolling interest is created when the parent does not acquire 100% of the sub (the
parent will record it in their equity section on the consolidated FS as being separate from
their equity)
BIG = BS of subsidiary is adjusted to FV (100% of assets and liabilities), identifiable
intangible assets of the sub are recorded at their FV (record the INCREASE of the FV of
the assets, and goodwill (or gain) is the plug usually
Acquisition cost + noncontrolling interest (NCI) > Sub FV (100%) = Goodwill (debit)
Sub FV > acquisition cost + NCI = Gain
All of this is only done on the consolidated workpaper, not on the company books
CAR + BIG = IN
For investment in sub (I), direct out of pocket costs and indirect costs (ex: legal
expenses) are expensed and stock registration and issuance costs are a direct
reduction of the value of the stock issued (take $ out of APIC on day that acquisition
occurs - do both of these on date of acquisition)
LEGAL EXP IS NOT CAPITALIZED (aka not added to the investment total)
If a comp pays a sub extra $ as a thank you for consolidating, this $ must be added to
the investment in the sub along with a credit to an estimated liability for contingent
consideration
The amt of CAR is usually the plug (IN = investment in sub + NCI) and BIG is goodwill +
BV to FV adjustment and intangible adjustments
CAR can also just be the BV of the subs assets (always debit APIC for this amt)
CAR is not the CS + APIC + RE of the parent, it is of the sub
The equity or cost method are used INTERNALLY (just like for a comp who has sig
influence) but not externally
