Acquistion Acct and Consolidation

Acquistion Acct and Consolidation - University of Rhode...

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Unformatted text preview: University of Rhode Island BUS 402 Advanced Accounting 2010 - 2011 Joseph M. DAdamo Course Outline #5: Acquisition Accounting and Consolidations (100% Ownership) Page 1 of 34 I. Acquisitions with 100% Ownership Interest A. Acquirer and Acquiree Continue as Separate Legal and Fiscal Entities Acquirer (Investor) = Parent Acquiree (Investee) = Subsidiary 1. Entities Maintain Separate Historical Cost Records and Financial Statements Subsidiary continues to hold its assets and owe its liabilities Subsidiary does NOT alter its records due to the combination and prepares its own financial statements for its creditors EX EX SEC Exception requiring Push-Down Accounting by Subsidiary (covered later) 2. Initial Recognition and Measurement by Acquirer (Parent) Parent records Initial Investment at Acquisition-Date FV of Net Assets Acquired FV of Consideration Transferred Acquisition-Date FV of Net Assets Acquired FV of Consideration Transferred < Acquisition-Date FV of Net Assets Acquired FV of Consideration Transferred = Acquisition-Date FV of Net Assets Acquired FV of Consideration Transferred > Acquisition-Date FV of Net Assets Acquired Course Outline #5: Acquisition Accounting and Consolidations (100% Ownership) Page 2 of 34 No Goodwill Recognized Goodwill Recognized @ Consolidation for Difference Gain on Bargain Purchase Recognized by Acquirer (Parent) for Difference 2. Subsequent Recognition Parent maintains Investment Account on its books a. Uses Initial Value (Cost) Method or Equity Method CPA Exam generally assumes Simplified Version of Equity Method used by Parent Also commonly used in practice b. Choice of Method Affects the Consolidation Process ONLY Investment account and related-activity 100% eliminated in consolidation process Method affects elimination entries NOT consolidated F/S c. Equity Method (simplified version) 100% Ownership Interest in Subsidiary Parent records the subsidiarys net earnings and dividends ONLY Does NOT amortize price differential and does NOT eliminate intra-entity profit from investment account and equity in net earnings of sub Investment account and equity in net earnings of sub Eliminated in the consolidation process Subs assets, liabilities, revenues, expenses, etc. consolidated with the parent Course Outline #5: Acquisition Accounting and Consolidations (100% Ownership) Page 3 of 34 B. Acquirer (Parent) and Acquiree (Subsidiary) Form One Economic Entity 1. Economic Entity Parent Co.s Controlling Financial Interest in an Entity Creates Parent Subsidiary relationship between the two entities...
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Acquistion Acct and Consolidation - University of Rhode...

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