Consolidation of Partially-Owned Subsidiaries Summer I 2009

Consolidation of Partially-Owned Subsidiaries Summer I 2009...

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Accounting 401 Consolidation of Partially-owned Subsidiaries Summer I 2009 A. At the acquisition date, the acquiring company recognizes and measures: 1. Identifiable net assets at full fair value, 2. Noncontrolling or minority interest at fair value, 3. Goodwill or gain from bargain purchase B. Reasoning behind showing 100% of the subsidiary’s net assets no matter what percentage is acquired (assuming acquirer has control of acquired company) is that acquirer is responsible and accountable for all of acquired company’s net assets, no matter what percentage of stock has been acquired. C. This approach is much different than the purchase method required prior to passage of SFAS 141R. Under the purchase method, subsidiary net assets were measured partially at fair value and partially at subsidiary’s book value. D. For example, under the purchase method, suppose subsidiary’s equipment had a balance of $100,000 on the books with a fair market value of $150,000. Let’s assume the parent purchased 80% of the subsidiary’s voting common stock. The above to be reported for equipment on the consolidated balance sheet on the purchase date would have been calculated as follows: Parent equipment at book value + (subsidiary equipment at fair value – subsidiary equipment at book value x percentage of stock acquired by parent) + subsidiary equipment at book value. The above is now illustrated using the numbers.
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Consolidation of Partially-Owned Subsidiaries Summer I 2009...

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