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Unformatted text preview: Chapter 5 CHAPTER 5 CONSOLIDATION OF LESS-THAN-WHOLLY OWNED SUBSIDIARIES ANSWERS TO QUESTIONS Q5-1 The noncontrolling interest is reported as a separate item in the stockholders equity section of the balance sheet. Past practice often presented the noncontrolling interest between long-term liabilities and stockholders equity. Q5-2 The consolidated balance sheet always includes 100 percent of the subsidiarys assets and liabilities. When the parent holds less than 100 percent ownership of the subsidiary, the noncontrolling interests claim on those net assets must be reported. Q5-3 The income statement portion of the consolidation workpaper is expanded to include a line for income assigned to the noncontrolling interest. This amount is deducted from consolidated net income in computing income to the controlling interest. The balance sheet portion of the workpaper also is expanded to include the claim of the noncontrolling shareholders on the net assets of the subsidiary. Q5-4 The balance assigned to the noncontrolling interest is based on the fair value of the noncontrolling interest at the date of acquisition. Q5-5 Consolidated retained earnings includes only amounts attributable to the shareholders of the parent company. Thus, none of the retained earnings is assigned to the noncontrolling interest. Q5-6 One hundred percent of the fair value of the subsidiarys assets is included. Q5-7 The amount of goodwill at the date of acquisition is determined by deducting the fair value of the net assets of the acquired company from the sum of the fair value of the consideration given by the acquiring company and the fair value of the noncontrolling interest. The resulting goodwill must be apportioned between the controlling and noncontrolling interest. Under normal circumstances, goodwill apportioned to the noncontrolling interest will equal the excess of the fair value of the noncontrolling interest over its proportionate share of the fair value of the net assets of the acquired company. Q5-8 Income assigned to the noncontrolling interest normally is a proportionate share of the net income of the subsidiary. Q5-9 Income assigned to noncontrolling shareholders is reported as a deduction from consolidated net income in arriving at income assigned to the parent company shareholders. Q5-10 Dividends paid to noncontrolling shareholders are eliminated in preparing the consolidated statement of retained earnings. Only dividends paid to the parent company shareholders are reported as dividends distributed to shareholders. Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 8e 5 - 1 Chapter 5 Q5-11 When the parent owns all the shares of a subsidiary (and the subsidiary has no other publicly traded securities outstanding), it is free to decide whether it wishes to publish separate statements for the subsidiary. In some cases creditors, regulatory boards, or other interested parties may insist that such statements be produced. parties may insist that such statements be produced....
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- Fall '10