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CHAPTER 4 CONSOLIDATED FINANCIAL STATEMENTS AFTER ACQUISITION Revise the section on page 119 “Complete Equity Method on Books of Investor” as follows: Complete Equity Method on Books of Investor The complete equity method is usually required to report common stock investments in the 20% to 50% range, assuming the investor has the ability to exercise significant influence over the operating activities of the investee. In addition, a parent company may use the complete equity method to account for investments in subsidiaries that will be consolidated. This method is similar to the partial equity method up to a point, but it requires additional entries in most instances. Continuing the illustration above, assume additionally that the $800,000 purchase price exceeded the book value of the underlying equity of S Company by $100,000; and that the difference was attributed half to goodwill ($50,000) and half to an excess of market over  book values of depreciable assets ($50,000).  Under new FASB regulations, goodwill would  be capitalized and not amortized.  The additional depreciation expense implied by the  difference between market and book values, however, must still be accounted for.  The  depreciation of the excess, if spread over a life of ten years, would result in a charge to  earnings of $5,000 per year.  This charge has the impact of lowering the equity in subsidiary  income, or increasing the equity in subsidiary loss, recorded by the parent.     The entries for the first three years under the complete equity method are: GRAY BOX for Parent Company Entries Year 1 – P’s Books Investment in S Company 800,000 Cash 800,000 To record the initial investment. Investment in S Company
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This note was uploaded on 02/28/2012 for the course BUSINESS 101 taught by Professor Smith during the Spring '08 term at UCLA.

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