F5 M3 Flashcards
Consolidated Financial Statements
when is an investor considered to have parent status?
when the investor acquires 50% or more of voting stock (common stock) control of the investee
non-controlling interest
-portion of net assets of a subsidiary that the parent does not have voting stock in
-reported at fair value of equity section in consolidated B/S, separate from parent’s equity
controlling interest
-parent owns 50% or more of voting stock of sub’s net assets
acquisition method characteristics
1) 100% of net assets (regardless of ownership %) recorded at fair value and any unallocated balance creates goodwill
2) when companies consolidated, sub’s entire equity is eliminated (not reported)
items to be eliminated upon consolidation (CAR IN BIG)
1) C/S, APIC, and RE of subsidiary
2) Investment in subsidiary
3) noncontrolling interest
4) B/S adjustments to FV
5) Identifiable intangible assets to FV
6) Excess of fair value of sub over fair value of net assets
consolidated workpaper eliminating entry journal entry
Dr. C/S - subsidiary
Dr. APIC - subsidiary
Dr. RE - subsidiary
Cr. Investment in subsidiary
Cr. Noncontrolling interest
Dr. B/S adjustments to FV
Dr. Identifiable intangible assets to FV
Dr. Goodwill
fair value of subsidiary
acquisition cost + noncontrolling interest
what happens when the acquisition cost < fair value of subsidiary?
shortage/negative amt is recorded as a gain
goodwill calculation
=fair value of subsidiary - fair value of subsidiary’s net assets
asset fair value differences
=fair value of subsidiary’s net assets - book value of subsidiary’s net assets
intercompany inventory/merchandise transactions
1) total amt of intercompany sale and COGS must be eliminated prior to consolidating
2) intercompany profit must be eliminated from ending inventory and COGS of purchasing related party
3) 100% of profit eliminated even if parent’s ownership is less than 100%
4) intercompany profit in PY recognized by selling related party is eliminated through a debit to RE
intercompany sale and merchandise transactions journal entry
Dr. Intercompany sales
Dr. RE (profit in beg. inventory)
Cr. Intercompany COGS
Cr. COGS (intercompany profit in COGS of purchasing related party)
Cr. Ending inventory (intercompany profit in inventory remaining)
inventory sold to outsiders
inventory still on hand
-correct COGS
-correct ending inventory
intercompany profit on sale calculation
=intercompany sales - intercompany COGS
COGS calculation
beginning inventory
+ purchases
- ending inventory
= COGS
intercompany bonds transactions
1) debt considered retired and gain or loss recognized on consolidated I/S when one affiliated company takes on its third party’s debt
2) gain or loss not reported on either books, but eliminated
gain or loss recognized on retired debt calc
= price paid to acquire debt - book value of debt
journal entry when affiliate takes related party debt
Dr. Investment in affiliate bonds (amt paid)
Cr. Cash
eliminating journal entry for bond and gain/loss recognized for extinguishment of bond
Dr. Bonds payable (face value or cost)
Dr. Premium
Cr. Discount
Cr. Investment in affiliate bonds
Cr. Gain on extinguishment
Dr. Loss on extinguishment
elimination of intercompany bond transaction in subsequent yrs
-realized but unrecorded gains/losses on extinguishment of bond adjusted to RE
-noncontrolling interest would be adjusted if bonds were sold to subsidiary
intercompany sale of land
-gain/loss on sale of land remains unrealized until sold to outsider
journal entry to record sale of land to affiliate
Dr. Cash
Cr. Land
Cr. Intercompany gain on sale of land
eliminating entry for sale of land to affiiliate
Dr. Intercompany gain on sale of land
Cr. Land (price paid for land - cost of land)
non-controlling interest in relation to sale of bonds to affiliate
-non-controlling interest would be adjusted for the consolidating entry if bonds were sold by subsidiary
-gain would be allocated to non-
controlling interest
-if parent issued bonds, no impact on non-controlling interest
sale of land in subsequent years
-until land is sold to outsider, RE debited and land credited to eliminate intercompany profit
-gain would be closed to RE
-no need to divide sale of land if sold by parent to sub
when is the intercompany sale of fixed assets recognized?
-gain or loss on sale is unrealized until asset is sold to an outsider
journal entry to record sale of fixed asset from sub to parent
Dr. Cash
Dr. Accum depreciation
Cr. Fixed Asset (original cost)
Cr. Intercompany gain on sale
Dr. Intercompany loss on sale (plug)
eliminating entry to record sale of fixed asset from sub to parent
Dr. Intercompany gain on sale
Cr. Intercompany loss on sale
Cr. Fixed Asset (depreciation amt for parent)
Cr. Accumulated depreciation (original amt from sub)
how to calculate the depreciation to be eliminated
1) NBV of asset / remaining lives
2) new cost of asset (amt paid by affiliate) / remaining lives
3) take difference of steps 1 and 2
journal entry to eliminate excess depreciation (also applicable for subsequent years)
Dr. Accumulated depreciation
Cr. Depreciation expense
subsequent year journal entries for fixed assets
-intercompany gain/loss and excess depreciation closed to RE
-adjust RE, and noncontrolling interest for original gain/loss - excess depreciation previously recorded
journal entry for subsequent year for fixed assets
Dr. RE (gain - excess depreciation)
Cr. Fixed Asset (amt of depreciation)
Cr. Accum depreciation (original accum - excess depreciation)
consolidated statement of cash flows (period of acquisition)
1) net cash spent or received in acquisition must be reported in investing section of statement of cash flows
2) assets and liabilities of sub on acquisition date should be added to parent’s assets and liabilities at beginning of yr to determine change in operating, financing, and investing activities
consolidated statement of cash flows (subsequent periods)
1) in reconciling net income to net cash provided by operating activities, total consolidated net income (net income of parent and noncontrolling interest used
2) financing section reports dividends paid by sub to noncontrolling shareholders. Dividends to parent not reported
3) investing section reports acquisition of additional sub shares by parent if acquisition was open market purchase
calculating portion of COGS and ending inventory related to intercompany profit
1) Intercompany profit = Sales - COGS
2) use COGS formula to determine COGS = (beg inv. + purchases = COGS available - ending inv.)
3) divide COGS and ending inventory from total COGS available sale for purchaser to determine ratios
4) multiple respective ratios to intercompany profit
parent’s stockholder’s equity calculation
C/S
+ APIC
+Non controlling interest
+ RE
noncontrolling interest calculation
acquisition cost = FV of parent * ownership %
noncontrolling share of net income
beginning RE
+ net income (plug)
- dividends
= ending retained earnings
*take net income plug * noncontrolling %
