F4 - M4 - Acquisition Method: Part 1

Question 1

Calculating for Acquisition Price

Answer 1

Measured at FAIR VALUE, 50% - 100% ownership consolidate

Parent can purchase sub with cash or stock
Parent - CASH
Dr. Investment in Sub
Cr. Cash

Parent - STOCK (close date)
Dr. Investment in Sub
Cr. Common Stock (parent at par)
Cr. APIC (parent/FV - par)

Question 2

Parents Basis

Answer 2

ACQUISITION PRICE also equals Investment in Subsidiary

Question 3

Consolidation Adjustments

Answer 3

For external reporting, acquiring corporation

CAR IN BIG

1. “CAR” Common stock, APIC, Retained Earnings of Subsidiary are eliminated
2. Investment in Subsidiary is eliminated
3. Noncontrolling Interest (NCI) is created (Not 100%)
4. BS of Sub adjusted to FAIR VALUE
5. Identifiable Intangible Assets of Subs recorded at Fair Value
6. Goodwill or Gain is required

Question 4

Consolidated Workpaper Eliminating JE

Answer 4

CAR IN BIG

Dr. Common stock - Sub (eliminates sub equity)
Dr. APIC - Sub (eliminates sub equity)
Dr. Retained earnings - sub (eliminates sub equity)
Cr. Investment in sub (eliminate parents invest)
Cr. Noncontrolling interest (eliminate parents invest)
Dr. Balance sheet adjustments to FV
Dr. Identifiable Intangible assets to FVZ
Dr. Goodwill

Question 5

CAR

Answer 5

Based on ACQUISITION DATE of calculation (back in)

Assets - Liabilities = Equity (BV or CAR)

Question 6

Investment in Subsidiary

Answer 6

Original Carrying Amount

1. Original Cost (measured by FV)
2. Out of pocket items EXPENSED

Question 7

Contingent Consideration

Answer 7

Parent to transfer additional assets if subsidiary conditions are met

Dr. Expense - Increase in estimated contingent
Cr. Estimated liability for consideration

Question 8

Parent Company Accounting for Investment in Subsidiary

Answer 8

Cost or Equity Method (internal purposes only)