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Flashcards in Chapter 3 Deck (19):
1

Limitations of consolidated financial statements

1. masking of poor performance
2. Limited availability of resources
3. Unrepresentative combined financial ratios
4. a lack of uniformity
5. lack of detailed disclosures

2

direct control

when one company owns a majority of the stock

3

indirect control

when one companies common stock is owned by more than one company controlled by the same company

4

effective control

idea of control that the FASB is attempting to put into practice

5

noncontrolling or minority interest

the shareholders who are not considered the parent because they don't own a majority of the shares and they don't have control

6

consolidated net income

equal to the parent's income from its own operations, excluding any investment income from consolidated subsidiaries, plus the net income from each of the consolidated subsidiaries

7

Noncontrolling retained earnings

accounted for in the equity section under noncontrolling interests

8

JE for stock acquisition for 80% of a company

Investment in Special Foods
Cash
FV of Acquirer consideration is 240000 noncontrolling is 20% which is 60000

9

Basic investment elimination entry in partially owned company

Common Stock 200000
R E 100000
Investment in Special Foods 240000
NCI in NA of Special Foods 60000
the NCI is booked as a credit on the acquired companies books

10

NCI in NA of Acquired company

is recorded in the equity of the consolidated financial statement

11

Partially owned Income on investment entry

inv
income from inv

12

partially owned dividend

cash
investment in special foods

13

partially owned elimination entry

C/S
RE
Inc Acquired C
NCI in NI of Special Foods
Dividends declared
Investment in Special Foods
NCI in NA of Special Foods
you have to eliminate all intercompany transactions

14

depreciation elimination entry

you have to eliminate the subs depreciation

15

depreciation and other values for elimination entries are calculated at the acquisition date

know it

16

Variable Interest Entities

special purpose entity with guidelines, once they are established as this the specific assets and liabilities can be excluded from the balance sheet of the entity
definition: legal structure used fro business purposes, usually a corporation, trust, or partnership, that either does not have equity investors that have voting rights and share in all of the entity's profits and losses or has equity investors that do not provide sufficient financial resources to support the entity's activities

17

combined financial statements

financial statements that include a group of related companies without including the parent company or other owner are

18

special purpose entity

financing agent that usually doesn't have any operations

19

primary beneficiary

person who gets the benefit from the variable interest entity