ACC_401_Chapter_6_-_W7

ACC_401_Chapter_6_-_W7 - ACC 401 Chapter 6 Week 7:...

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ACC 401 Chapter 6 – Week 7: Consolidated Financial Statements: On Date of Purchase-Type Business Combination Slide # Topic Narration 1 Introduction In the previous lesson, we discussed business combinations – what they are and how to account for them. In this lesson, we will discuss consolidated financial statements, including the concept of control over ownership and wholly owned and partially owned subsidiaries. Next slide. 2 Objectives When you complete this lesson, you will be able to: Prepare working paper eliminations and consolidated financial statements for wholly owned subsidiaries Prepare working paper eliminations and consolidated financial statements for partially owned subsidiaries Explain two concepts that account for minority interest on consolidated financial statements Describe two alternative methods for valuing minority interest and goodwill Illustrate a bargain-purchase excess for both wholly owned and partially owned subsidiaries And describe the use of push-down accounting. Next slide. 3 Parent Company- Subsidiary Relationships If an investor acquires a controlling interest in the investee, a parent-subsidiary relationship is established. The investee becomes the subsidiary of the acquiring parent company but remains a separate legal entity. However, a parent company and its subsidiary are a single economic entity. Because of this, consolidated financial statements are issued as though they are a single accounting entity. Consolidated financial statements are similar to the combined financial statements described previously for a home office and its branches. However, the separate legal entity status of the parent and subsidiary corporations necessitates eliminations that are generally more complex than the combination eliminations
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described for a home office and its branches. In the past, a wide range of consolidation practices existed among major corporations in the United States. However, these variations were undesirable and difficult to justify. There is no reason for excluding from consolidation any subsidiary that is controlled . In the Financial Accounting Standards Board Statement number 94, the Board required the consolidation of nearly all subsidiaries. Only subsidiaries not actually controlled were exempted from consolidation. Next slide. 4 Parent Company- Subsidiary Relationships, continued Traditionally, an investor’s direct or indirect ownership of more than 50% of an investee’s common stock has been required to evidence the controlling interest underlying a parent-subsidiary relationship. Even though such a common stock ownership exists, other circumstances may negate the parent company’s actual control of the subsidiary. For example, a subsidiary that is in liquidation in court-supervised bankruptcy proceedings is not controlled by its parent company. Many accountants criticized the traditional definition of control,
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ACC_401_Chapter_6_-_W7 - ACC 401 Chapter 6 Week 7:...

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