Consolidated Financial Statements

Question 1

What does Control or majority voting interest mean for consolidated financial statements ?

Answer 1

GREATER than 50% of direct or indirect ownership of another entity.

Question 2

What should be reported as Liabilities of Consolidated FS?

Answer 2

P+S

Question 3

Gross profit rate formula

Answer 3

Gross profit rate = Gross profit over total sales

Question 4

For which items does only the share of parent get reported in the BS?

Answer 4

P ONLY - Dividends/Retained Earnings/Net Income/Common Stock

*Stockholder’s equity too (only if equity method of accounting is used) if they had paid with the stock, purchase price will also be added to the stockholder’s equity}

Question 5

What is Gain from Bargain Purchase (ASC topic 810)?

Answer 5

The excess of the FV of the net assets acquired over acquisition cost is recognized as a gain from a bargain purchase in the period of acquisition.

Question 6

When is goodwill recognized in the consolidation?

Answer 6

Goodwill is recognized during acquisition or purchase of company/business

Formula to calculate value of Goodwill or when to recognize goodwill = CV - FV

Question 7

How to calculate NCI of a parent co. in sub at the end of the year?

Answer 7

NCI of P in Sub at the beginning of the year + (% share in sub NI of Sub) - Dividends paid by Sub NCI Share of P in %)

Question 8

Is consolidation process carried out on the books of the parent entity? How does the process take place?

Answer 8

No. It rather takes place on worksheets and schedules that are separate from any set of books. Consolidated Financial statements report 2 or more legal entities as though they are a single economic entity.

Question 9

What does 20% to 50% voting ownership signify?

Answer 9

Significant Influence

Question 10

What does more than 50% voting ownership signify?

Answer 10

Control

Question 11

How to calculate Goodwill ?

Answer 11

FV of Consideration paid by P
+ NCI FV
(-) FV of Shaw’s net assets
_____________________________________
= Goodwill

Question 12

NCI

Answer 12

NCI recognized during consolidation
+ NCI net Income (of S)
(-) NCI dividends (S)
___________________________
NCI interest of P in S

Question 13

Investment in Subsidiary will be _____________

Answer 13

ELIMINATED entirely in consolidation

Question 14

NCI is shown in ______________ but not in separate unconsolidated financial statements.

Answer 14

CONSOLIDATED FIN STATEMENTS

Question 15

In which circumstances consolidation is not required?

Answer 15

When subsidiary is in bankruptcy and when S in a foreign country where severe restrictions have been imposed by that Govt.

Question 16

Total Owner’s equity in consolidation is calculated as :

Answer 16

P’s equity + new stock of P issued in acquisition

Question 17

An adjustment is required to remove the payable from P’s books and the corresponding amount from the receivables on the subsidiary’s books.

Answer 17

True

Question 18

The consolidation process requires a decrease to the SALES REVENUE of the S’s company and a corresponding decrease to the COGS of P’s company.

Answer 18

True

Question 19

Intercompany gain will be eliminated with a credit to __________

Answer 19

INVENTORY

Question 20

How should TOTAL ASSETS be reported in Consolidated BS

Answer 20

P + S + Goodwill (Purchase - FV of Net Assets of Sub)

Question 21

The difference between the bond carrying amounts in the two companies would decrease

Answer 21

RETAINED EARNINGS for either the year of acquisition or a subsequent year.

Question 22

The method used by the parent to carry on its book its investment in the subsidiary will affect the final consolidated financial statements.

Answer 22

True

Question 23

Intercompany sales = P+S - Consolidated Revenue

Answer 23

Look at REVENUE figures

Question 24

For intercompany, Payable :Check AR

Answer 24

P+S - Consolidated AR

Question 25

CONSOLIDATED BS

Answer 25

Instead of Inv in Sub, include 100% of Sub's A + L and NCI in Consolidated E

Question 26

E - Equity of the subs Dr. A-Subs Assets (FV>BV) net of excess dep G-Goodwill L-Liabilities (FV>BV) I-Inv in Subs N- NCI

Answer 26

JE (eliminate intercompany transactions) Dr. AP (eliminate AP) Cr. AR Dr. Sales Cr. COGS Cr. Inventory

Question 27

Variable Interest Entity=

Answer 27

Special Purpose Entity

Question 28

Inventory is adjusted

Answer 28

ELimination of profit Dr. RE Cr. Inventory

Question 29

CHECK FIGURE

Answer 29

CONSOLIDATED EQUITY = PARENT EQUITY + NCI

Question 30

Dr. AP Cr. AR

Question 31

Dr. Sales Cr. COGS Cr. Inventory

Question 32

ASSETS AND LIABILITIES

Answer 32

Combine (both P + S)

Question 33

EQUITY METHOD - On parent's books, CV of the investment in sub reflects

Answer 33

1. Parent's share of sub's income or loss Investment in Sub (B/S) XXX Equity in Earnings (I/S) XXX 2. Parent's share of dividends (this is not income) declared by sub: Dividends receivable/cash XXX CV goes down Investment in Sub (B/S) XXX 3. Amortization of any difference between the FV and CV of identifiable assets, if FV is greater than CV Equity in earnings (I/S) XXX CVgoes down Investment in Sub (B/S) XXX

Question 34

COST METHOD : NI and Dividends are not adjusted unlike EQUITY method

Answer 34

No need to adjust Parent's share of Sub's income/loss. Parent's sh of dividends declared by sub. JE Dividends receivable/Cash (B/S) XXX Dividend Income (I/S) XXX

Question 35

ACQUISITION METHOD - Under the acquisition method, the PREquisition equity of the SUB is not carried forward in an acquisition.

Answer 35

Consolidated equity will be equal to the parent's equity balance. IN ACQUISITION METHOD, ONLY PARENT'S EQUITY IS INCLUDED IN CONSOLIDATION. Equity of SUB will be eliminated.

Question 35

INTERCOMPANY SALES

Answer 35

look into REVENUES

Question 36

Machine or asset - show at Parent's ORIGINAL Cost

Answer 36

True (ORIGINAL COST)

Question 37

ALl intercompany transactions will be eliminated

Answer 37

True

Question 38

Subsidiary will report its own payable and it will be eliminated from CONSOLIDATED BALANCE SHEET

Answer 38

TRUE

Question 39

Remove Intercompany profit transaction from INVENTORY

Answer 39

TRUE

Question 40

INTERCOMPANY PROFIT ELIMINATION

Answer 40

CALCULATE FROM INVENTORY (P+S-Consolidated)

Question 41

Payable to Pard for intercompany sales

Answer 41

AR

Question 42

UNADJUSTED REVENUE

Answer 42

ELIMINATE

Question 43

Intercompany sales

Answer 43

Revenue

Question 44

NCI

Answer 44

NCI ownership amount/Sub's Equity

Question 45

Selling Expenses

Answer 45

P+S - Intercompany selling expenses

Question 46

Dividends declared by the parent are reduced by a subsidiary's percent ownership in the parent

Answer 46

True

Question 47

The difference between the bond carrying amounts in the 2 companies would decrease ____________ for either the year of acquisition or a subsequent year

Answer 47

RETAINED EARNINGS (and, if financial statements were being prepared for the current year, the loss would be reported as an ordinary loss on the income statement) This loss would be carried through to the consolidated balance sheet as a decrease in RE. In subsequent years, the unamortized portion of the loss would also decrease RE.

Question 48

CONSOLIDATION

Answer 48

GREATER than 50% of the directly or indirectly owned outstanding voting shares of another entity

Question 49

Unrealized intercompany profit

Answer 49

Revenue - COGS

Question 50

Only NCI dividends are reported on the consolidated balance sheet

Answer 50

True (100% owned SUB dividend to be eliminated completely)

Question 51

NCI in net assets

Answer 51

Start from FV of NCI + share of NCI % of NI of SUb - share of NCI % of SUb's Dividend

Question 52

Goodwill will be recognized if ______

Answer 52

COST of the investment in the SUB exceeded the FV of all net assets acquired

Question 53

Difference between OLD Depreciation and NEW Depreciation Divided by Original Gain

Answer 53

Difference in Dep/Gain

Question 54

Intercompany receivables and payables are not eliminated unless consolidated fin statsments are prepared.

Answer 54

Since Pare only has a 15% int in Sub, consolidated fin statements would not be prepared. Report payable separately

Question 55

Equity vs. Consolidation

Answer 55

Equity - do not consider NI of SUB Consolidation - COnsider NI of SUB as well

Question 56

No NCI interest which means own 100% of sub

Answer 56

Report RE only of parent's

Question 57

Cost method = FV method

Answer 57

parent will recognize parent's share of sub's DIVIDENDS only

Question 58

CV of inventory of SUb purchased from Parent

Answer 58

Look into revenue amounts provided (Revenue of P+S - Consolidated revenue)

Question 59

Eliminating entry following an intercompany sale of a fixed asset at a gain

Answer 59

Fixed Asset Dr. XX Gain Dr. (to eliminate inter co. gain) XX Accu Dep. Cr. XX

Question 60

Eliminate inter company profit

Answer 60

COGS XX Ending Inventory XX

Question 61

Summary of significant accounting policies is typically the first ______

Answer 61

Footnote

Question 62

Elimination entry - Depreciation

Answer 62

Gain on sale XX AD (sub dep) XX Dep (excess) XX Equipment (original cost - SP) XX