Chapter 3 Q and A

Chapter 3 Q and A - CHAPTER 3 AN INTRODUCTION TO...

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CHAPTER 3 AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS Answers to Questions 1 A corporation becomes a subsidiary when another corporation either directly or indirectly acquires a controlling financial interest (generally over 50 percent) of its outstanding voting stock. 2 Amounts allocated to identifiable assets and liabilities in excess of recorded amounts on the books of the subsidiary are not recorded separately by the parent. Instead, the parent records the fair value/purchase price of the interest acquired in an investment account. The allocation to identifiable asset and liability accounts is made through working paper entries when the parent and subsidiary financial statements are consolidated. 3 The land would be shown in the consolidated balance sheet at $100,000, its fair value, assuming that the purchase price is equal to or greater than the total fair value of the subsidiary. If the parent had acquired an 80 percent interest and the purchase price was equal to or greater than the fair value of the interest acquired, the land would still appear in the consolidated balance sheet at $100,000. Under SFAS No. 141R, the noncontrolling interest is also reported based on fair values at the acquisition date. 4 Parent company —a corporation that owns a controlling interest in the outstanding voting stock of another corporation (its subsidiary). Subsidiary company —a corporation that is controlled by a parent company that owns a controlling interest in its outstanding voting stock, either directly or indirectly. Affiliated companies —companies that are controlled by a single management team through parent- subsidiary relationships. (Although the term affiliate is a synonym for subsidiary, the parent company is included in the total affiliation structure.) Associated companies —companies that are controlled through parent-subsidiary relationships or whose
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This note was uploaded on 04/11/2011 for the course ECON 3200 taught by Professor Azevedo during the Spring '11 term at UCM.

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Chapter 3 Q and A - CHAPTER 3 AN INTRODUCTION TO...

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