Escolar Documentos
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Cultura Documentos
Accounting
Jeter Chaney
Consolidated
Financial Statements
After Acquisition
Learning Objectives
Describe the accounting treatment required under current
GAAP for varying levels of influence or control by
investors.
Prepare journal entries on the parents books to account
for an investment using the cost method, the partial
equity method, and the complete equity method.
Understand the use of the workpaper in preparing
consolidated financial statements.
Prepare a schedule for the computation and allocation of
the difference between implied and book values.
2
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
Learning Objectives
Prepare the workpaper eliminating entries for the year of
acquisition (and subsequent years) for the cost and equity methods.
Describe how to account for interim acquisitions of subsidiary
stock at the end of the first year.
Explain how the consolidated statement of cash flows differs from a
single firms statement of cash flows.
Understand how the reporting of an acquisition on the consolidated
statement of cash flows differs when stock is issued instead of cash
payment.
Describe some of the differences between U.S. GAAP and IFRS in
accounting for equity investments.
3
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
Investments in Stock
Investments in voting stock may be consolidated, or separately
reported at
cost,
fair value, or
carrying value of equity.
The method of reporting adopted depends on a number of factors
including
size of investment
extent to which the investor exercises control over activities of
the investee
marketability of the securities.
4
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
Significant
influence (no
control)
Investment
valued using the
cost method
but with
adjustments to
fair value.
Investment
measured under
equity method
Effective control
Investment recorded
using cost method or
equity method
(investment
eliminated in
consolidation)
5
LO 1 Varying levels of ownership are accounted for differently.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
Required: Prepare journal entries for Percy Company from the date of
purchase through 2016 to account for its investment in Song Company
under each of the following assumptions:
8
LO 2 Journal entries for Parent using cost method.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
2014
Investment in Song
Cash
387,000
387,000
Cash
20,000
9
LO 2 Journal entries for Parent using cost method.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
2015
Cash
40,000
Cash
40,000
28,000
28,000
(liquidating dividend)
10
LO 2 Journal entries for Parent using cost method.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
2014
Investment in Song
Cash
387,000
387,000
Investment in Song
50,800
50,800
Cash
20,000
20,000
11
LO 2 Journal entries for Parent using partial equity method.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
2015
Investment in Song
42,000
42,000
Cash
40,000
40,000
12
LO 2 Journal entries for Parent using partial equity method.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
2016
44,000
28,000
28,000
13
LO 2 Journal entries for Parent using partial equity method.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
2014
Investment in Song
Cash
387,000
387,000
Investment in Song
Equity income (.8 x $63,500)
50,800
50,800
Cash
20,000
20,000
15
LO 2 Journal entries for Parent using complete equity method.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
2014
$387,000
380,000
$ 7,000
700
700
16
LO 2 Journal entries for Parent using complete equity method.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
2015
Investment in Song
42,000
42,000
Cash
40,000
40,000
700
700
17
LO 2 Journal entries for Parent using complete equity method.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
2016
44,000
28,000
28,000
700
700
18
LO 2 Journal entries for Parent using complete equity method.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
22
LO 5 Workpapers eliminating entries.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
23
LO 5 Workpapers eliminating entries.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
24
LO 5 Workpapers eliminating entries.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
2.
120,000
10,000
23,000
15,421
8,421
160,000
25
LO 5 Workpapers eliminating entries.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
Goodwill
15,421
15,421
19,000
19,000
26
LO 5 Workpapers eliminating entries.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
$26,000
5%
$ 1,300
27
LO 5 Workpapers eliminating entries.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
$ 40,000
+ Parkers income
129,000
- 19,000
24,700
- 20,000
$154,700
28
LO 5 Workpapers eliminating entries.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
8.
8,421
1,300
-1,000
$ 8,721
29
LO 5 Workpapers eliminating entries.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
31
LO 5 Workpapers eliminating entries after acquisition (cost method).
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
32
LO 5 Workpapers eliminating entries after acquisition (cost method).
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
5,700
5,700
Entry to establish
Reciprocity
33
LO 5 Workpapers eliminating entries after acquisition (cost method).
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
37
LO 5 Workpaper eliminating entries (equity method).
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
38
LO 5 Workpaper eliminating entries (equity method).
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
39
LO 5 Workpaper eliminating entries (equity method).
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
40
LO 5 Workpaper eliminating entries (equity method).
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
Cash
Accounts receivable
Inventory
Investment in Sid
Plant and equipment
Land
Dividends declared
Cost of goods sold
Operating expenses
Total debits
Accounts payable
Other liabilities
Common stock
Other contributed capital
Retained earnings
Sales
Equity in subsidiary income
Total credits
Parker
$ 70,000
60,000
40,000
193,500
125,000
48,500
20,000
160,000
35,000
$ 752,000
Sid
$ 20,000
35,000
30,000
90,000
45,000
15,000
65,000
20,000
$ 320,000
16,500
15,000
200,000
70,000
168,000
260,000
22,500
$ 752,000
16,000
24,000
120,000
20,000
30,000
110,000
$ 320,000
41
LO 5 Workpaper eliminating entries (equity method).
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
42
LO 5 Workpaper eliminating entries (equity method).
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
43
LO 5 Workpaper eliminating entries (equity method).
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
45
LO 6 Interim acquisitions of subsidiary stock.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
47
LO 6 Interim acquisitions of subsidiary stock.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
48
LO 6 Interim acquisitions of subsidiary stock.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.
49
LO 6 Interim acquisitions of subsidiary stock.
Copyright 2015. John Wiley & Sons, Inc. All rights reserved.