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FAR 2014 > Consolidations > Flashcards

Flashcards in Consolidations Deck (49):
1

When is the fair value method used for recording interest in a separate company?

20% Ownership or Less

Accounted for as a purchase

If amount paid is less than fair value; results in a gain in current period

2

When is the equity method used when purchasing another company's stock? How is it recorded?

Ownership 21% to 50%

Gives significant influence

Purchase Price - Par Value : Goodwill

Dividends received from the investee reduce the investment account and are not income

3

When are companies required to file consolidated financials? How is it recorded?

Ownership of other company is greater than 50%

Investment account is eliminated

Only parent company prepares consolidated statements; not subsidiary.

Acquired assets/liabilities are recorded at Fair Value on acquisition date.

Eliminating entries for inter-company sales of inventory & PPE; also inter-company investments

4

When is consolidation not required?

Ownership less than 50%

OR

Majority owner does not control - i.e. bankruptcy or foreign bureaucracy

5

What occurs under a step acquisition?

Acquirer held previous shares accounted for under Fair Value Method or Equity Method; and are now re-valued to Fair Value

Results in a Gain or Loss in current period

6

What is the difference between an acquisition and a merger?

Acquired companies continue to exist as a legal entity - their books are just consolidated with the parent company in the parent's financial statements

Merged companies cease to exist and only the parent remains

7

How are acquisition costs recorded in a merger?

Expensed in period incurred - i.e. NOT capitalized:
Accounting; Legal; Valuation; Consulting; Professional

Netted against stock proceeds:
Stock registration and issuance costs

8

Treatment of existing goodwill before business combination

Do my include old goodwill in net assets when calculating new goodwill

9

Treatment of finders fees and general acquisition expenses

Expensed as incurred

10

Treatment of registration fees and issuing fees for securities in acquisition

Reduce issue price of securities
Reduces APIC

11

Calculate the consolidated APIC if stock is issued to finance acquisition

Parent APIC + APIC from shares issues

12

What is a bargain purchase

FV of NCI + FV previous purchases of CS less than FV of net identifiable assets

13

What is the acquisition date

Date acquirer obtains control of acquirer

14

How is acquisition cost determine in step acquisition

Previously held shares Remeasured at FV as of the date control is acquired
Gain recognized in period

15

Examples of intangible assets not included in goodwill

Trademarks
Lease agreements
Patents
Assets arising from contractual or legal rights
Assets identifiable and can be sold separately

16

How is the acquisition cost allocated

Allocated to acquired asset and liabilities based in relative FV

17

Calculate acquisition cost

Cost + FV of NCI

18

Calculate current liabilities for acquisition of entity via debt financing

Include current portion of LT debt in current liabilities

19

Calculate acquisition goodwill

Assets transferred + FV NCI - FV net identifiable assets

20

How are assets valued at acquisition date

At fair value

21

How are intercompany receivables and payables recorded on subsidiary subsequent to acquisition

Intercompany receivable and payables still recorded
Only eliminate on parents consolidated FS

22

Calculate NCI account balance

FV of NCI at acquisition date + share of net income - share of dividends

23

How is the excessive value over CV of equipment treated on consolidated FS

Capitalized and amortized over useful life

24

How are dividends declared recorded on consolidated FS when parent owns sub and sub owns parent

Eliminate dividends from parent to sub and sub to parent
Sub to NCI not included on consolidated FS because it does not represent dividend of consolidated entity

25

Rule for consolidating variable purpose entity

Equity less than 10 percent of total assets. Assumed entity does not have sufficient financing to fund operations

26

Who should consolidate variable purpose entity

Primary benefiticiary

27

When is the determination of consolidation of variable purpose entity made

Made at time entity gets involved with VIE
Reassessed on ongoing basis

28

Adjustments required when switching to consolidated FS

Consolidated FS is change in entity
Retroactively restate all FS

29

How are earnings of parent and sub reflected on consolidated FS

Consolidated FS reflect combined operations of parent and sub subsequent to acquisition. Earnings of sub prior to combo not included in parent income

30

What causes unrealized profit in ending inventory of consolidated FS

Intercompany sales made at prices greater than cost and merchandise not resold to 3rd party. Must be eliminated from consolidated FS

31

Calculate unrealized profit in ending inventory

Sales to sub - sub cost x parent GP %

32

Calculate Consolidated COGS when intercompany sales between parent as sub

Parent COGS + Sub COGS - sales from parent to sub

33

Calculate consolidated selling expenses with sales from parent to sub and freight out expenses

Selling expense parent + selling expense sub - freight out expense from parent to sub

34

How to record equipment from parent sold to sub at gain on consolidated FS

Equipment recorded at original cost less accumulated depreciation

As if equipment had never been sold

35

Calculate gain on subsidiary purchase of parent bonds and effect on NCI

Gain = cash paid - CV

Treated like retirement of bonds

No effect on NCI

36

Treatment of wholly owned subsidiary's purchase of parent stock

Treated as if consolidated entity is purchasing treasury stock

No gain recorded

37

Adjusted accounts on consolidate FS for intercompany sales

Adjust sales and COGS for intercompany sales

Net income needs no adjustment

38

How is NCI share of net income affected by intercompany sales

Not affected by unrealized gain
It is a downstream sales from parent to subsidiary

39

How are the parent investment account and subsidiary stockholder equity and NCI reported on consolidated FS

Parent investment account and subsidiary stockholder equity account eliminated

Portion of subsidiary stockholder equity not eliminated is NCI

40

Examples of consideration transferred on acquisition

FV of assets and liabilities
FV of contingent consideration
Equity interest issued by acquirer
Share based payments required to be replaced by acquirer where not further service is require by employee

41

How to treat incomplete information on acquisition date

Items recorded at provisional amount at acquisition date

42

What is the measurement period for incomplete information

Earlier of one year from acquisition date or date complete information is available

43

If a acquisition provisional amount is inaccurate how to adjust

Retroactively adjust goodwill

44

How is the voluntary payment of share based payments to employees at acquisition recorded

As compensation expense post acquisition date

45

When are contingent liabilities arising from acquisition derecognized

Only after contingency is resolved

46

What are combined financial statements

FS prepared or companies owned by same parent or individual

Eliminate intercompany transactions

47

When are combined FS used

Present financial position as results of:

Commonly controlled companies
Companies under common mgmt
Group of consolidated subsidiaries

48

When is goodwill recognized under IFRS

When acquired by purchase

49

When can a subsidiary be exclude from consolidation under IFRS

Wholly or partially owned and its owners do not object to nonconsolidation
No debt or equity is publicly traded
Parent prepares consolidated FS under IFRS