Advanced Financial Accounting Ch4 Lecture Notes

Advanced Financial Accounting Ch4 Lecture Notes - 1 4-1...

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Unformatted text preview: 1 4-1 CHAPTER FOUR Consolidation of Wholly Owned Subsidiaries ACCT400 Advanced Financial Accounting Fall Semester 2008 4-2 Eliminating Entries To adjust totals of individual account balances of separate companies to reflect amounts that would appear if all legally separate companies were actually a single company Only appear in consolidation workpaper Do NOT affect books of separate companies Some eliminating entries are required for just one period while some are required for subsequent periods 2 4-3 Full Ownership Purchased at BV Simplest case: 100%; purchase price = BV of stock Textbook example: On January 1, 2001, P purchases ALL of Ss common stock for $300,000 Ss individual assets and liabilities have FV equal to BV on date of combination Purchase price = BV of NA = BV of stock NO differential Ps journal entry: Investment in S stock 300,000 Cash 300,000 Note: Cash is paid to former stockholders of S and no longer in consolidated entity 4-4 B/S of 2 companies before combination: $500,000 $1,100,000 Total 100,000 300,000 Retained earnings 200,000 500,000 Common stock 100,000 200,000 Bonds payable $100,000 $100,000 Accounts payable Liabilities & Equities: $500,000 $1,100,000 Total (300,000) (400,000) Accumulated depreciation 600,000 800,000 Buildings and equipment 40,000 175,000 Land 60,000 100,000 Inventory 50,000 75,000 Accounts receivable $50,000 $350,000 Cash Assets: S P 3 4-5 B/S of 2 companies after combination:-- 300,000 Investment in S stock $500,000 $1,100,000 Total 100,000 300,000 Retained earnings 200,000 500,000 Common stock 100,000 200,000 Bonds payable $100,000 $100,000 Accounts payable Liabilities & Equities: $500,000 $1,100,000 Total (300,000) (400,000) Accumulated depreciation 600,000 800,000 Buildings and equipment 40,000 175,000 Land 60,000 100,000 Inventory 50,000 75,000 Accounts receivable $50,000 $50,000 Cash Assets: S P 4-6 Consolidation workpaper (Figure 4-4): Insert account titles and balances of P and S in consolidation workpaper Accounts with debit balance are in upper half and those with credit balance are in lower half Total debits = total credits for P, S and consolidated entity Eliminating entry (intercorporate stockholdings): Common Stock - S 200,000 Retained Earnings 100,000 Investment in S stock 300,000 Eliminating entry only appears in consolidation workpaper and is NOT recorded by either P or S Prepare consolidated balance sheet directly from last column of consolidation workpaper (Figure 4-5) 4 4-7 Full Ownership Purchased at More than BV Purchase price is different from acquired stocks BV due to changes in net asset values, enterprise earning power and general market conditions, etc....
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This note was uploaded on 12/13/2008 for the course ADVANCED ACCT440 taught by Professor Teresa during the Spring '08 term at University of Manchester.

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Advanced Financial Accounting Ch4 Lecture Notes - 1 4-1...

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