Business Combinations

Question 1

Accounting methods for investments

Answer 1

0 - 20% no control/influence FVTNI
20-50% significant influence equity method
50%+ control consolidation

Question 2

Controlled investment - purchase

Answer 2

at purchase:
DR  investment in subsidiary
     CR  common stock
     CR  APIC
     CR  cash

Question 3

Controlled investment - consolidation entries

Answer 3

at consolidation:
DR  common stock
DR  APIC
DR  retained earnings
DR  FV adjustments
DR  goodwill
       CR investment in subsidiary
       CR noncontrolling interest

OR

DR   assets (100% FV)
DR  goodwill (FV co - FV net assets)
         CR liabilities (100% FV)
         CR investment in subsidiary (ownership %)
         CR noncontrolling interest (nonownership %)
why? b/c assets - liabilities = equity

Question 4

Controlled investment - consolidation

Answer 4

At consolidation you bring in 100% of the investment’s assets and liabilities into the investor’s books.
The investor owns the equity (that’s the investment), so that portion does NOT come over.