FAR-Business Combinations and Consolidations

Question 1

When should an investment in an entity be consolidated?

Answer 1

When there is a 50% or more equity stake in the company, or the investor has control over the investee.

Question 2

In what case would the equity method be used even though less than 20% of equity is owned?

Answer 2

o Significant intercompany transactions or technological dependency
o Officers of the investor serving as board members of the investee
o The investor is a major customer or supplier of the investee

Question 3

Which investees’ receivables appears on an investor’s balance sheet?

Answer 3

Unconsolidated subsidiaries

Question 4

What are the names of the parent and the subsidiary in a consolidation, repectively?

Answer 4

Acquirer and Acquiree

Question 5

In a business combination accounted for as an acquisition, the appraised values of the identifiable assets acquired exceeded the acquisition price. How should the excess appraised value be reported?

Answer 5

As gain to NI for the period

Question 6

If an acquirer owns 50% of an acquiree, how much of it’s assets should it show on the consolidated balance sheet?

Answer 6

100% of assets and liabilities, each at fair value.