A preacquisition income refers to the subsidiarys

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a) Preacquisition Income refers to the subsidiary’s revenue expense amounts that have accrued prior to the acquisition date. In this example, the preacquisition income is $25,000. (5 months of Jan-May X $5,000 per month net income.) b) According to the new rules, preacquisition income is excluded from/ignored in consolidated totals, so no preacuqisition is reported. Craft will only show the revenues and expenses for Long Crop from the date of acquisition and on. The earnings from June- December 2010 are $35,000 (7 months X $5,000 per month net income.) These earnings will appear on the consolidated net income line of the income statement. c) (dr) Investment in Sub $31,500 ($35,000 X 90% ownership) (cr) Equity Earnings of Sub $31,500 d) “When a subsidiary is initially consolidated during the year, the consolidated financial statements shall include the subsidiary’s revenues, expenses, gains, and losses only from the date the subsidiary is initially consolidated.” ARB 51 as amended by FASB Statement No. 160, page 8, paragraph 11. “The FASB concluded that to faithfully represent an acquirer’s financial position and results of operations, the acquirer should account for all business combinations at the acquisition date. In other words, its financial position should reflect the assets acquired and liabilities assumed at the acquisition date—not before or after they are obtained or assumed. Moreover, the acquirer’s financial statements for the period should include only the cash inflows and outflows, revenues and expenses, and other effects of the acquiree’s operations after the acquisition date.” FASB Statement No. 141r, page 119, paragraph B109.
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Situation 4 a) No, you will not be required to restate the results using the acquisition method. Looking at FASB 141r, paragraphs 74 and 75 , we find the following: “74. This Statement shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier application is prohibited.”
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