hoyle_sg04

hoyle_sg04 - Updated Sixth Edition Chapter 4 Consolidated...

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Updated Sixth Edition Chapter 4 Consolidated Financial Statement and Outside Ownership Chapter Outline I. Consolidations Involving a Noncontrolling Interest A. In regard to any combination in which a noncontrolling interest remains, an fascinating theoretical controversy is created as to 1. the appropriate consolidation values that should be assigned to the subsidiary’s accounts and 2. the method of disclosing the presence of the other owners. B. Virtually nothing in official accounting pronouncements has ever addressed the issue of valuation theory in combinations involving less than 100 percent ownership. 1. The FASB recently started examining this issue which may lead to the issuance of a statement requiring one theory to be used. 2. Companies are currently free to apply any one of several approaches in reporting the accounts of a subsidiary. C. Under the economic unit concept , accounting emphasis on preparing consolidated financial statements is placed on the entire entity that results from the business combination. 1. Valuation of subsidiary accounts is based on the implied value of the company as a whole — as determined by the purchase price. 2. Specific subsidiary assets and liabilities are consolidated at their fair market values. 3. A noncontrolling interest balance is also calculated from the implied value of the company and is reported as a component of stockholders’ equity. D. The proportionate consolidation concept presumes that the ultimate objective of consolidated financial statements is to serve as a report to stockholders of the parent company. 1. Valuation of subsidiary accounts is based on the parent company’s cost and specific subsidiary assets and liabilities are consolidated at the ownership percentage of their fair market values. 48 Advanced Accounting – Updated 6/e
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2. The noncontrolling interest is not represented in any manner within the consolidation process. E. The parent company concept is a hybrid approach derived from concepts of both the economic unit concept and the proportionate consolidation concept . 1. The book value of each subsidiary asset and liability account is consolidated in total while any difference between cost and fair market value is included based on the parent’s ownership percentage. 2. Noncontrolling interest is calculated from the subsidiary’s book value and is most frequently shown between the liability and stockholders’ equity sections of the consolidated balance sheet. II. Consolidations Involving a Noncontrolling Interest — Subsequent to Acquisition A. According to the parent company concept , all noncontrolling interest amounts are calculated in reference to the book value of the subsidiary company. B.
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hoyle_sg04 - Updated Sixth Edition Chapter 4 Consolidated...

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