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Unformatted text preview: Consolidation of Wholly Owned Subsidiaries 4 Consolidation Procedures 0. The starting point for preparing consolidated financial statements is the books of the separate consolidating companies 0. The consolidated entity has no books 1. Amounts in the consolidated financial statements originate on the books of the parent or a subsidiary or in the consolidation work paper Consolidation Work papers 0. The consolidation work paper a mechanism for: 0. Combining the accounts of the separate companies involved in the consolidation 1. Adjusting the combined balances to the amounts that would be reported if all consolidating companies were actually a single company 1. When consolidated statements are prepared, the account balances are taken from the separate books of the parent and each subsidiary and placed in the consolidation work paper 2. The consolidated statements are prepared, after adjustments and eliminations, from the amounts in the work paper 3. Eliminating entries 2. Used to adjust the totals of the individual account balances of the separate consolidating companies to reflect the amounts that would appear if all the legally separate companies were actually a single company 3. Appear only in the consolidating work papers and do not affect the books of the separate companies 4. Used to increase or decrease the combined totals for individual accounts so that only transactions with external parties are reflected in the consolidated amounts 5. They do not carry over from period to period Consolidated Balance Sheet with Wholly Owned Subsidiary Illustration Pe e rle s s Spe cial Products Foods A ssets C ash $350,000 $50,000 A ccounts R eceivable 75,000 50,000 Inventory 100,000 60,000 Land 175,000 40,000 B uildings and Equipment 800,000 600,000 A ccumulated D epreciation (400,000) (300,000) Total A ssets $1,100,000 $500,000 Liabilities and Stockholders Equity A ccounts P ayable $100,000 $100,000 B onds P ayable 200,000 100,000 C ommon Stock 500,000 200,000 R etained Earnings 300,000 100,000 Total Liabilities and Equity $1,100,000 $500,000 B alance Sheets of P eerless P roducts and Special Foods, January 1, 20X1, Immediately before C ombination 100 percent ownership acquired at book value 0. Peerless acquires all of Special Foods common stock for $300,000, an amount equal to the fair value of Special Foods as a whole 0. On the date of combination, the fair values of Special Foods individual assets and liabilities are equal to their book values 1. Peerless records the stock acquisition on its books: Investment in Special Foods 300,000 Cash 300,000 Work paper for Consolidated Balance Sheet, January 1, 20X1, Date of Combination; 100 Percent Acquisition at Book Value Investment Elimination Entry: Common StockSpecial foods 200,000 Pe e rle s s Spe cial Products Foods A ssets Cash $50,000 $50,000 A ccounts Receivable 75,000 50,000 Inventory 100,000 60,000 Land 175,000 40,000 Buildings and Equipment 800,000 600,000 A ccumulated D epreciation (400,000)...
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This note was uploaded on 05/11/2010 for the course ACCT 410 taught by Professor Hays during the Spring '10 term at Louisiana State University in Shreveport.
- Spring '10