Chap010 - Chapter 10 - Additional Consolidation Reporting...

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Chapter 10 - Additional Consolidation Reporting Issues CHAPTER 10 ADDITIONAL CONSOLIDATION REPORTING ISSUES ANSWERS TO QUESTIONS Q10-1 The balance sheet, income statement, and statement of changes in retained earnings are an integrated set and generally need to be completed as a unit. Once completed, these statements can then be used in preparing a consolidated cash flow statement. Because both the beginning and ending consolidated balance sheet totals are needed in determining cash flows for the period, the cash flow statement cannot be easily incorporated into the existing three-part workpaper format. Q10-2 Consolidated retained earnings do not include the earnings assigned to noncontrolling shareholders. As a result, dividends paid to noncontrolling shareholders are not included in the consolidated retained earnings statement. On the other hand, all the cash generated by the subsidiary is included in the consolidated cash flow statement and all uses of cash must also be included, including that distributed to noncontrolling shareholders in the form of dividends. Q10-3 The indirect method focuses on reconciling between net income and cash flows from operations and does not attempt to report payments to suppliers or other specific uses of cash. It does report the change in inventory and accounts payable which are included in determining payments to suppliers. While adjusting net income for changes in inventory and accounts payable leads to a correct reporting of cash flows from operations, it does not permit explicit reporting of payments to suppliers. Q10-4 Changes in inventory balances are used in computing the amount reported as payments to suppliers and do not need to be separately reported. Q10-5 Sales must be included in the consolidated cash flows workpaper when the direct method is used. They are excluded from the workpaper when the indirect method is used. Q10-6 (a) When the indirect method is used the changes in inventory are reported as a reconciling item in the statement of cash flows. (b) When the direct method is used, changes in inventory are included in the computation of payments to suppliers and not separately disclosed. Q10-7 Only sales subsequent to the date of acquisition are included. The acquired company was not part of the consolidated entity prior to the date of acquisition. Q10-8 Dividends paid by the acquired company to the noncontrolling shareholders following the date of acquisition are included as a cash outflow in the consolidated statement of cash flows. Dividends paid by the acquired company prior to acquisition are excluded. The acquired company was not part of the consolidated entity. 10-1
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Chapter 10 - Additional Consolidation Reporting Issues Q10-9 The revenues and expenses of the subsidiary for the full year are included in the consolidated income statement when the acquisition occurs at the beginning of the year.
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Chap010 - Chapter 10 - Additional Consolidation Reporting...

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