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Unformatted text preview: follows: 2-35 Consolidated Retained Earnings
+ Parent’s RE from its own operations (excluding any income from
consolidated sub. recognized by the parent)
+ Parent’s proportionate share of the net income of each sub., since
acquisition date (adjusted for differential write-off & goodwill
= CONSOLIDATED RETAINED EARNINGS •RE figure: not consistent with the computation of consolidated net
•RE in the consolidated balance sheet is that portion of the
consolidated entity’s undistributed earnings accruing to the parent’s
•Any RE related to subsidiary NCI shareholders is included in the
NCI in Net Assets of Subsidiary amount reported in the equity
section of the consolidated balance sheet.
2-36 Consolidated Retained Earnings: Example
Push purchases 80% of the stock of Shove on January 1, 20X1, and
accounts for the investment using the equity method. 2-37 Combined Financial Statements Combined financial statements: prepared for a group of companies when no one company in the group owns a majority of the common stock of any other company in the group. Procedures used to prepare combined financial statements = those used in preparing consolidated financial statements: Eliminate all intercompany receivables, payables, transactions, unrealized profits and losses, ownership, and the associated portion of stockholders’ equity. The remaining stockholders’ equity is divided into the portions accruing to the CI and NCI.
2-38 SpecialPurpose & Variable Interest Entities Corporations, trusts, or partnerships created for a single specified purpose. Usually have no substantive operations and are used only for financing purposes. Used for several decades for asset securitization, risk sharing, and taking advantage of tax statutes. 2-39 Special Purpose Entities: SPEs What is normally the business purpose? Bundle peripheral activities and have them done by an independent, but close, friend. Examples: Acquire financing for a project Package receivables and sell them to third parties 2-40 Variable Interest Entities: VIE What is a VIE? An entity that either does not have equity investors with voting rights and a percentage of profits and losses, OR
has equity investors that do not provide sufficient financial resources to support the entity’s activities. In a VIE, specific agreements may limit the extent to which equity investors, if any, share in the entity’s profits or losses, and the agreements may limit the control that equity investors have over the entity’s activities .
2-41 Variable Interest Entities: VIE A corporation having an interest in a VIE cannot simply rely on its % stock ownership, if any, to determine whether to consolidate the entity. Instead, each party having a variable interest in the VIE must determine the extent to which it shares in the VIE’s expected profits and losses. Variable Interest → Interest that changes with changes in the VIE’s net assets: Variable Interests increase with the VE’s profits and decrease with its losses. 2-42 Variable Interest Entities: Primary Beneficiary The primary beneficiary of a VIE must consolidate the VIE. The primary beneficiary is the entity that has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance.
will absorb losses of the VIE that could potentially be significant to the VIE or will receive the benefits from the VIE that could potentially be significant to the VIE. Only one primary beneficiary can exist for a VIE (by definition). 2-43...
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This document was uploaded on 02/23/2014 for the course BUS 434 at Stonehill.
- Spring '14