FAR 1A6 Conso Flashcards
How is OCI reported in the consolidated stockholders’ equity section if the parent owns >50% of a subsidiary?
✅ The parent company reports 100% of OCI in the consolidated stockholders’ equity section.
✅ The non-controlling interest (NCI) share of OCI is calculated as:
How is consolidated net income reported when the parent holds <100% of a subsidiary?
✅ 100% of the subsidiary’s net income is included in the consolidated total.
✅ The NCI share of net income is shown separately as a negative amount before arriving at net income attributable to the parent.
How is consolidated retained earnings calculated?
✅ Parent’s retained earnings
✅ + Parent’s share of the subsidiary’s net income
❌ Do NOT add subsidiary’s retained earnings
✅ + NCI of subsidiary’s equity
How is consolidated net income calculated?
✅ Parent’s net income
✅ + Subsidiary’s net income
✅ Show consolidated net income
✅ Subtract NCI share (negative)
✅ Result = Net income attributable to the parent
What happens if a subsidiary issues new shares?
✅ Parent’s ownership % decreases 📉
✅ NCI increases at the consolidated level
How do you identify elimination entries when given total assets/liabilities for both parent and sub?
✅ Sum parent + subsidiary amounts
✅ Compare to the consolidated total
✅ The difference is the elimination adjustment
How are dividends treated in consolidation?
✅ Intercompany dividends are eliminated.
✅ The only dividends reported in the consolidated financials are:
- Dividends paid to non-controlling shareholders (NCI dividends).
- Dividends paid to parent shareholders (only from the parent, NOT from the sub).
How are eliminations for inventory transactions handled?
✅ Eliminate only the gross profit (GP) remaining in inventory.
✅ If inventory is sold externally, no elimination is needed.
How much of a subsidiary’s intercompany balances should be eliminated in consolidation?
✅ 100% of intercompany amounts are eliminated.
✅ Not just the parent’s % ownership (e.g., not just 80%).
What happens when PPE is sold internally at a price different from carrying value?
✅ Depreciation must be adjusted to reflect the difference in carrying value.
✅ This prevents overstating or understating depreciation expense.
Does a fair value adjustment of a subsidiary’s assets affect consolidated equity?
❌ No. Fair value adjustments affect the allocation of purchase price but do not change total consolidated equity.
How does the parent recognize subsidiary net income in consolidation?
✅ 100% of subsidiary’s net income is included in the consolidated statement.
✅ NCI’s portion is subtracted afterward.
How is consolidated stockholders’ equity calculated?
✅ 100% of parent’s equity
✅ + NCI’s share of the subsidiary’s equity
✅ OR
✅ 100% of parent’s equity + NCI’s share of changes in sub’s retained earnings
Where is NCI’s share of subsidiary retained earnings reported?
✅ In the NCI section of equity
❌ Not in the parent’s consolidated retained earnings.
How is consolidated net income reported?
✅ Shows 100% of combined net income
✅ NCI’s share is subtracted afterward for transparency.
What is the difference between net income since acquisition vs. current net income?
✅ Current net income = 100% of the subsidiary’s net income is included, including the NCI’s share.
✅ Net income since acquisition (retained earnings impact):
- Parent’s share only is added to retained earnings.
- NCI’s share is reported separately in the equity section.
What must be clearly identified in the consolidated income statement?
✅ Consolidated amounts of revenues, expenses, gains, losses, and OCI
✅ Net income is separated into amounts attributable to the parent and NCI
How does the equity method impact the parent’s retained earnings?
✅ The parent’s retained earnings include its share of the subsidiary’s post-acquisition earnings.
✅ This prevents double counting of the subsidiary’s net income in consolidated retained earnings.
How does a business combination affect consolidated equity?
✅ The acquired company’s stockholders’ equity is eliminated against the investment account.
✅ Consolidated retained earnings include only the parent’s retained earnings.
What happens to intercompany dividends in consolidation?
✅ Intercompany dividends are eliminated.
✅ The only dividends that remain after eliminations are:
- Dividends paid to non-controlling shareholders (NCI).
How is a subsidiary’s purchase of its parent’s bonds treated in consolidated financial statements?
📉 The bonds are considered retired for consolidation purposes
✅ Any gain or loss on retirement is recorded in the parent’s retained earnings.
❌ No effect on noncontrolling interest (NCI) because the parent is the bond issuer.
🚀 Key Rule: Intra-entity transactions must be eliminated in consolidation.
When does a bond retirement gain/loss affect noncontrolling interest (NCI) in consolidation?
📌 If the subsidiary issued the bond → The gain/loss affects NCI because it impacts the subsidiary’s net income.
📌 If the parent issued the bond → The gain/loss does NOT affect NCI because it is attributed fully to the parent.
🚀 Key Rule: NCI is only affected by transactions that impact the subsidiary’s net income.
For what reasons a gain/loss on bond retirement NOT be eliminated in consolidation?
📌 The gain/loss is real because the bond was purchased from an external party.
📌 If the parent was the issuer → The gain is recorded in retained earnings (NCI is NOT affected).
📌 If the subsidiary was the issuer → The gain impacts net income and is partially allocated to NCI.
