2 Flashcards
(5 cards)
According to GAAP, a business must
The activities and assets of a business are capable of being managed to provide economic benefits (returns such as dividends, and lower costs). Processes are applied to inputs to generate outputs. Outputs are direct returns to investors and other participants.
Under the “full” equity method of accounting how to compute the NI?
Under the “full” equity method of accounting, the parent company’s net income equals consolidated net income.
consolidated financial statements of Purl and its subsidiary, total assets should be
Total consolidated assets include Purl’s assets (less the investment account), Scott’s assets (adjusted to FV at date of purchase) and goodwill (less amortization).
P Co. purchased term bonds at a premium on the open market. These bonds represented 20% of the outstanding class of bonds issued at a discount by S Co., P’s wholly owned subsidiary. P intends to hold the bonds until maturity. In a consolidated balance sheet, the difference between the bond carrying amounts of the two companies is
Because a consolidated financial statement should include both P and S as a single (consolidated) reporting entity, the purchase of the outstanding bonds of S by P at a premium was in substance a retirement of debt for more than the debt’s carrying amount. This transaction should be reflected in the consolidated income statement for the year of the purchase as a constructive loss from the retirement of debt. Hence, the effect on the balance sheet is to decrease retained earnings by an amount equal to the premium plus the unamortized discount before the tax effect.
Intraentity loans and profits should be included when which of the following are prepared for two entities.
Consolidated financial statements are usually presented when one entity (the parent) owns the majority of the outstanding voting interests of another entity (a subsidiary). Combined financial statements are issued when a relationship such as common ownership or common management exists for two or more entities. Intraentity transactions and profits or losses are eliminated from combined statements as well as consolidated statements.
