Flashcards in Consolidated F Statements Deck (31)
The objective of consolidated financial statements is to present the financial statements of multiple entities as if they were one. TF
When are does a firm "control" another firm?
over 50% equity ownership, primary beneficiary of a VIE
Con. Stmts are required when one entitiy has effective control over another entity. TF
If two or more entities are under common economic control, the controlling firm can elect to present consolidated financial statments. TF
False, GAAP REQUIRES con fin stmts.
The overriding theme in con fin stmts is that economic substance > legal form
If a subsidary firm is in bankruptcy, con fin stmts are required. TF
False, because the entity is no longer under economic control of the parent
Investment companies and brokers/securities are exempt form presenting con fin stmts. TF
If a company uses the "pooling of interests" method, they should present con fin stmts. TF
The consolidating process is carried out on the books of the parent company. TF
False, the consolidating process is carried out on worksheets off the books
Goodwill is highly likely to be eliminated through an eliminating entry on a consolidating worksheet. TF
BV, FV, and parents cost of investment are needed to be known to carry out consolidations. TF
In every consolidating process, IC investment is to be eliminated. TF
In every consolidating process, IC receivables and payables are to be eliminated.TF
False, only if the two companies have engaged in transactions that produce the balance.
A parent company may use the cost method to carry an investment on its books in which it wishes to consolidate. TF
True, a company can use whatever method it wants.
The choice of method in which a company carries a sub on its books will effect the consolidating process as well as the con fin stmts. TF
False, it will not effect the outcome of the con fin stmts, however it will effect the consolidating process.
What does the "reciprocity entry" do?
Cost method. Shows undistributed income. NI - Divs
If the parent company uses the Equity method to account for an investment post consolidation, what are the three adjustments made?
Adjustment to reflect income or loss, share of divs declared, and amortization of difference between FV of id'd assets and BV of those assets. The "Investment in Subsidiary" account is always in play.
If the parent company uses the Cost method to account for an investment post consolidation, what is the one adjustment made?
Adjustment to reflect share of divs declared. dr. Divs Receivable cr. Div Income
Any time you face a goodwill, NCI, etc. problem what should you draw?
NBV of target company =
BV + NI - Divs
Formula for NCI equity
Target NBV + 100% of the differential between target BV and Price Paid - Depreciation of differential = Value, Value x % of NCI ownership = NCI Equity
The amount of an investment eliminating entry is the balance in the investment account as of the end of the period being consolidated. TF
False, as of the BEGINNING
If a parent uses equity method accounting for a sub investment both income from the sub and divs from the sub must be reversed on the consolidating worksheet. TF
Transactions and balances between affiliated companies must be eliminated. TF
Pro Tip: When answering a question in the null form (an "is not" question) read through the questions independently and decide which statements are true and which statements are false.
The false statement is the answer.
All inter-company accounts are eliminated upon consolidations. TF
Subsidiary dividends are included in consolidated dividends. TF
False, they are never included as consolidated dividends.
If an I/C transaction is not eliminated, there will be an overstatement of sales on the fin stmts. TF
IC fixed asset gain on sale / remaining useful life of the asset = difference in depreciation taken by the buyer and seller. TF
True, but only if the useful life of the asset remains unchanged
What is the best tool to use while working on IC transactions?
Should be, is, difference table. The difference is the eliminating entry.