Consolidation Subsequent to the Combination Summer I 2009

Consolidation Subsequent to the Combination Summer I 2009 -...

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Accounting 401 Consolidation Subsequent to the Combination Brief Notes Summer I 2009 A. Review of Accounting For Investments in Subsidiaries 1. Full Equity Method – In addition to those given for the simple equity method, adjust for amortization of fair market value to book value differences from the business combination. 2. Partial Equity Method – Adjust parent’s investment account for parent’s share of subsidiary’s reported net income (or net loss) and subsidiary dividends declared. Record income in an account titled Investment Income. In the cases of majority ownership of subsidiary stock, we will call this account Equity in subsidiary earnings. 3. Cost Method (referred to by your authors as Initial Value Method) Parent’s investment includes only the cost of acquiring the subsidiary. Any other adjustments to reflect equity method information are done on subsequent consolidated worksheets. B. Consolidation Procedures – Full Equity Method 1. Sometimes the parent company is required to use the full equity method. For example, suppose the parent is trying to get a major loan from a bank. The bank may require investment information using the full equity method. The parent may be using the full equity method already, or they could convert their records from simple equity or initial value to full equity. 2.
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Consolidation Subsequent to the Combination Summer I 2009 -...

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