Advanced Accounting Ch 5 - Consolidation of...

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Consolidation of Less-than-Wholly Owned Subsidiaries 5 Effect of a Noncontrolling Interest 0. When a subsidiary is less than wholly owned, the consolidation procedures must be modified slightly to recognize the noncontrolling interest 1. Consolidated Net Income 0. In the absence of transactions between companies included in the consolidation, consolidated net income is equal to: 0. The parent’s income from its own operations, excluding any investment income from consolidated subsidiaries, plus the net income from each of the consolidated subsidiaries, adjusted for any differential write-off 2. The income attributable to the subsidiary noncontrolling interest is deducted from consolidated net income on the face of the income statement to arrive at consolidated net income attributable to the controlling interest 1. The income attributable to a noncontrolling interest in a subsidiary is based on a proportionate share of that subsidiary’s net income 3. Consolidated retained earnings 0. That portion of the consolidated entity’s undistributed earnings accruing to the parent’s stockholders 1. Calculated by adding the parent’s share of subsidiary cumulative net income since acquisition to the parent’s retained earnings from its own operations and subtracting the parent’s share of any differential write-off 4. Consolidated retained earnings 2. Retained earnings related to subsidiary noncontrolling shareholders is included in the Noncontrolling Interest amount reported in the equity section of the consolidated balance sheet 3. More consistent with the parent company theory rather than the entity approach Illustration of consolidated net income and consolidated retained earnings 5. Push Corporation acquires 80 percent of the stock of Shove Company for an amount equal to 80 percent of Shove’s total book value. During 20X1, Shove reports net income of $25,000, while Push reports net income of $120,000, including equity-method income from Shove of $20,000 ($25,000 x .80). Consolidated net income for 20X1 is computed and allocated as follows: Push’s net income $120,000 Less: Equity-method income from Shove (20,000) Shove’s net income 25,000 Consolidated net income $125,000 Income attributable to noncontrolling interest (5,000) Income attributable to controlling interest $120,000
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Consolidated Balance Sheet with Majority-Owned Subsidiary Net income and dividends during the two years following acquisition are: Push Shove Retained earnings, January 1, 20X1 $400,000 $250,000 Net income, 20X1 120,000 25,000 Dividends, 20X1 (30,000) (10,000) Retained earnings December 31, 20X1 $490,000 $265,000 Net income, 20X2 148,000 35,000 Dividends, 20X2 (30,000) (10,000) Retained earnings, December 31, 20X2 $608,000 $290,000 Consolidated retained earnings at December 31, 20X2, two years after the date of combination, is computed as follows, assuming no differential: Push’s retained earnings, December 31, 20X2 $608,000 Equity accrual from Shove since acquisition
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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.

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Advanced Accounting Ch 5 - Consolidation of...

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