Consolidated financial statements

Question 1

How do you calculate the adjusted carrying value of an investment in a subsidiary? (equity method)

Answer 1

Initial CV investment in sub (cost)
+ % share of subs NI
- % share excess Depreciation
**- % share dividends
= Ending CV Inv in sub (which is eliminated)

Question 2

How do you calculate equity earnings?

Answer 2

% share of subs NI
- % share excess Depreciation
= Equity Earnings

Question 3

What does EAGLIN stand for and when is it used? (Also know how to calculate for N)

Answer 3

It is used to eliminate entries on the date of acquisition when preparing consolidated financial stmts

Equity of Sub (CS, APIC, RE)
Assets (FV>BV excess net of depr)
Goodwill
‎ ‎ ‎ ‎‎ ‎ Liabilities (FV>BV excess)
‎ ‎ ‎ ‎‎ ‎ Investment in Sub
‎ ‎ ‎ ‎‎ ‎ NCI

NCI Beg balance
+ % share sub NI
-% share div of sub
= NCI ending balance

Question 4

What journal entries are used to eliminate intercompany transactions?

Answer 4

A/P
‎ ‎ ‎ ‎ ‎ A/R

Sales
‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ COGS
‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ Inventory (for the profit we want to eliminate)

OR

RE
‎ ‎ ‎ ‎ COGS
‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎

Question 5

What are the steps to consolidate a financial statement on the date of acquisition?

Answer 5

1) Find the excess in assets (PPE)
2) Determine the FMV of assets (BVE+excess assets-excess liabilities)
3) Calculate goodwill (Cost-FMV of assets)
4)Use the equity method to calculate Investment in sub
5) Use EAGLIN to eliminate
6) Add A+L line items eliminate Investment and Equity