Professional Documents
Culture Documents
Fall 2015
Altiero (Poziemski)
Asset vs. Stock Acquisition (which one have we been dealing with exclusively for the last
third of this class?)
Affiliated companies
Controlling interest
Definition of control
o Voting interest entities (Non-VIE) under US GAAP
o Variable interest entities (VIE) under US GAAP
o IFRS
Intercompany eliminations
o Investment in subsidiary/subsidiary equity accounts
o Intercompany receivables and payables
o Intercompany advances
o Intercompany interest expense and revenue
o Intercompany dividends
o Intercompany management fees
o Intercompany sales
Chapter 3 uses simplified cases. Remember that we added some special cases and complications in later chapters.
ACG 4803
Fall 2015
Altiero (Poziemski)
Why does it matter whether company issues parent-only financial statements when
determining appropriate accounting method?
Journal entries that adjust Investment in S on Parent books for the cost method
o Initial investment
o Shares of S purchased
o Shares of S sold
o Parent share of liquidating dividends
Journal entries that adjust Investment in S on Parent books for the partial equity method
o Initial investment
o Shares of S purchased
o Shares of S sold
o Parent share of dividends
o Parent share of income (loss)
Journal entries that adjust Investment in S on Parent books for the complete equity
method
o Initial investment
o Shares of S purchased
o Shares of S sold
o Parent share of dividends
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ACG 4803
Fall 2015
Altiero (Poziemski)
ACG 4803
Fall 2015
Altiero (Poziemski)
Chapter 5: Allocation and Depreciation of Differences between Implied and Book Values
Cost
Partial equity
Complete equity
ACG 4803
Fall 2015
Altiero (Poziemski)
Match the terms in the list to the definitions below. Each term may be used only once.
A.
B.
C.
D.
E.
F.
Parent
Subsidiary
Majority owned
Wholly owned
Totally held
Elimination
G. Workpaper
H. Consolidated statements
I. Difference between
implied and book value
J. Goodwill
K.
L.
M.
N.
O.
Adjustment
Intercompany transaction
Investment in S
P-only statement
Noncontrolling interest
_____ 1.
_____ 2.
The excess of the value implied by the purchase price over the fair value of the subsidiary's
identifiable net assets
_____ 3.
_____ 4.
An entry made to remove P's investment account and P's share of Ss equity accounts
_____ 5.
_____ 6.
_____ 7.
P loans money to S
_____8.
_____9.
_____10.
_____11.
The parent company owns and controls substantially all of the subsidiary
_____12.
_____13.
Financial statements prepared primarily for the creditors of the parent company
_____14.
An entry made to assure reciprocity (convert to equity) between the parent and subsidiary
companies
_____15.
The amount which arises when the parent company's cost is not the same as its share of the
recorded value of the subsidiary company's net assets
ACG 4803
Fall 2015
Altiero (Poziemski)
Calculate the difference between the value implied by the purchase price and book value in each of the
separate cases below
S Company Equity Balances
Case
Percent of
Stock Owned
Investment
Cost
Other
Contributed
Capital
$350,000
Retained
Earnings
$200,000
a.
100%
$1,200,000
Common
Stock
$600,000
b.
85%
850,000
500,000
200,000
100,000
c.
90%
1,000,000
750,000
300,000
(250,000)
d.
60%
600,000
350,000
-0-
300,000
Why does the parent company use a worksheet in the preparation of consolidated financial statements?
a. Because there are no consolidated journals and ledgers.
b. Because certain intercompany transactions must be eliminated.
c. Because there might be a difference between the value implied by the purchase price and the value
of the net assets.
d. All of these
ACG 4803
Fall 2015
Altiero (Poziemski)
The difference between value implied by the purchase price and book value results when the:
a. book value of the net assets acquired is different from the fair value of the identifiable assets
acquired.
b. fair value of the net assets acquired is different from the fair value of the net assets used .
c. book value of the net assets acquired is different from the fair value of the consideration paid.
d. book value of the net assets acquired is different from the book value of the assets used.
Match the terms in the list to the definitions below. Each term may be used only once.
A.
B.
C.
D.
E.
Cost method
Partial equity method
Complete equity method
Intercompany revenue
Interim acquisition
F.
G.
H.
I.
J.
Investment elimination
Reciprocity
No significant influence
Significant influence
Effective control
K. Computation and
allocation schedule
L. Consolidated retained
earnings
M. Investment in associates
_____ 1.
An amount that reflects the consolidated entitys portion of Ss undistributed income since
acquisition
_____ 2.
The total of Ps retained earnings plus the portion of Ss retained earnings since acquisition
_____ 3.
_____ 4.
The workpaper entry which offsets Ps asset account with Ss equity accounts
_____ 5.
_____ 6.
One corporation has between 20 and 50 percent of the stock of another corporation
_____ 7.
A technique to determine how to divide up the difference between implied and book value
_____ 8.
A way of recording a business combination where Ps share of Ss income and dividends are
recorded
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ACG 4803
Fall 2015
Altiero (Poziemski)
_____ 9.
_____10.
A technique of accounting for a combination where the effects of all intercompany transactions
are reflected in Ps books
_____11.
P buys a controlling interest in S at some time other than the end of Ss fiscal year
_____12.
_____13.
If a corporation shows effective control over another corporation, the first corporation owns:
a. less than 20 percent of the second corporation.
b. between 20 and 50 percent of the second corporation.
c. over 50 percent of the second corporation.
d. 100 percent of the second corporation.
The primary difference between the partial equity and the complete equity methods of accounting for
business combinations is:
a. under the complete equity method, the combination assumes that the two businesses have always
been together.
b. under the complete equity method, the parent records amortization and/or depreciation to account
for the difference between implied and book value.
c. under the partial equity method the parent records its share of dividends as income.
d. there is no difference between the partial equity and full equity methods.
ACG 4803
Fall 2015
Altiero (Poziemski)
Under the equity methods, the elimination entry to establish reciprocity (convert to equity) between Ps
investment and Ss equity:
a. will add Ps share of Ss undistributed income to Ps investment.
b. does not have to be made.
c. will have S record its noncontrolling interest in income.
d. will have S decrease its retained earnings to reflect income not distributed.
In a consolidated statements workpaper, which items are carried forward from one section to another?
a. Ps retained earnings, but not Ss
b. The total of the income section to the retained earnings section and then the total of the retained
earnings section to the balance sheet section.
c. The eliminations must balance for each section in order to carry them forward.
d. Each section on the workpaper is separate, so no numbers are carried forward.
ACG 4803
Fall 2015
Altiero (Poziemski)
Chapter 5: Allocation and Depreciation of Differences between Implied and Book Values
Match the terms in the list to the definitions below. Each term may be used only once.
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
_____ 1.
A technique used to assign the difference between implied and book value to Ss assets and
liabilities
_____ 2.
What P pays for Ss net assets is more than the fair value of those assets
_____ 3.
_____ 4.
S records the difference between implied and book value on its books
_____ 5.
[Ps purchase price divided by its share of S] minus book value of S equity
_____ 6.
There is a positive difference between what S has on its books for the value of its assets and
the market value of those assets
_____ 7.
_____ 8.
_____ 9.
An account used when the fair value of Ss net assets is less than the cost paid by P
_____10.
P records its share of Ss income and dividends, and also an entry to record the amortization
and depreciation of the difference between implied and book value.
The difference between implied and book value may be allocated to:
a. any assets or liabilities on Ss books.
b. any assets or liabilities on Ps books.
c. only to Ss land.
d. only to Ps land.
ACG 4803
Fall 2015
Altiero (Poziemski)
In the elimination entry for the partial equity method, the entry to eliminate Ps investment in S:
a. is the same as the cost method.
b. adjusts the difference between implied and book value.
c. is not necessary.
d. does not have a difference between implied and book value.
When S disposes of an asset prematurely and records a gain, how does that affect the consolidated
financial statements?
a. The workpaper must include an entry to adjust Ss gain or loss to reflect the gain or loss to the
consolidated entity.
b. S cannot record a gain on the sale of the asset.
c. P records on its books the gain on the sale.
d. The workpaper must include an entry to eliminate Ss gain against Ps reported income.
DISCLAIMER
I have provided this guide to help direct your study toward the most important concepts covered
in class. While I have not intentionally omitted any topics or information, please note that all
material covered in class, the assigned reading, and on the homework is fair game for the exam.
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