Professional Documents
Culture Documents
Beams11 ppt03
Beams11 ppt03
An Introduction to
Consolidated
Financial
Statements
to accompany
Advanced Accounting, 11th edition
by Beams, Anthony, Bettinghaus, and Smith
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
3-1
3-2
Objectives (continued)
5. Learn the concept of noncontrolling interest
when a parent company acquires less than 100
percent of a subsidiary's outstanding common
stock.
6. Prepare consolidated balance sheets
subsequent to the acquisition date, including
preparation of elimination entries.
7. Amortize the excess of the fair value over the
book value in periods subsequent to the
acquisition.
8. Apply the concepts underlying preparation of a
consolidated income statement.
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
3-3
3-4
Business Acquisitions
Business combinations through stock
acquisitions
Acquire controlling interest in voting stock
More than 50%
May have control through indirect ownership
Business combination occurs once
Acquisition of additional subsidiary stock is simply
additional investment
3-5
Consolidated Statements
Primarily benefit the owners and creditors of the
parent
Not primarily intended for the noncontrolling
owners nor the subsidiarys creditors
Subsidiaries issue separate statements for the
benefit of their owners and creditors
3-6
2: SUBSIDIARIES
3-7
Who is a Subsidiary?
A corporation becomes a subsidiary when another
corporation acquires controlling interest in its
outstanding voting stock.
In a 100 percent acquisition, the investee continues
to operate as a separate legal entity.
Subsidiaries, or affiliates, continue as separate
legal entities and prepare their own financial
reports.
3-8
3-9
Consolidated Statements
Prepared by the parent company
Parent discloses
Consolidation policy [SEC Reg. S-X, Rule 3A-03]
Any exceptions to consolidation
Fiscal year-end for consolidated entity:
Use parent's FYE, but
May include subsidiary statements with FYE within
3 months of parent's FYE.
Disclose intervening material events
3-10
3: PARENT COMPANY
RECORDING
3-11
$40
40
$0
3-12
Balance
Sheets
Cash
Other curr.
assets
Plant assets, net
Investment in
Sel
Total
Accounts
payable
Other curr.
liabilities
Consolida
Separate
ted
Pen Sel Pen & Sub.
$20 $10
$30
45
15
60
60
40
100
40
$16
5
$65
$190
$20
$15
$35
25
10
3-13
35
4: FAIR VALUE AT
ACQUISITION DATE
3-14
3-15
BV FV Cost
Difference between the book value of net
assets (BV) and the fair value of identifiable net
assets (FV) is assigned to the specific assets
or liabilities
E.g., undervalued or overvalued inventories, plant
assets
Unrecorded assets (patents) or liabilities (existing
contingencies)
Difference between FV and Cost is goodwill or
a gain on the bargain purchase
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
3-16
145
$320
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
3-17
Amt Amort.
25 1st yr
40 10 yrs
$65
100
145
25
40
3103-18
FV
$10
0
$10
0
40
40
Inventory
250
250
Plant, net
130
190
Total
$52 $58
0
0
Liabilities
$80
Cash
Receivables
$85
Capital stock
250
Retained
earnings
190
Cost
100% Book value
Excess of cost over BV
$52
$530
440
$90
3-19
5
530
3-20
BV
FV
Cash
$10
$10
Receivables
30
30
Inventory
80
90
Plant, net
100
120
$220
$250
$40
$40
Total
Liabilities
Capital stock
Retained earnings
Total
75
105
$220
BV = 75 + 105 = $180
FV = 250 - 40 = $210
Cost FV = -$25:
Gain on bargain purchase
Cost
100% BV
Excess of cost over BV
$185
180
$5
3-21
25
185
3-22
75
105
30
210
10
20
30
3-23
Cash
Receivables
Inventory
Plant, net
Investment in Sum
Unamortized excess
Total
Liabilities
Capital stock
Retained earnings
Total
Print
BV
$30
50
100
450
210
$840
$270
200
370
$840
Sum Adjustments
BV
DR
CR
$10
30
80
10
100
20
210
30
30
$220
$40
75
75
105 105
$220
240
240
3-24
Consolidated
$40
80
190
570
0
$880
$310
200
370
$880
5: NONCONTROLLING
INTERESTS
3-25
Noncontrolling Interest
Parent owns less than 100%
Noncontrolling interest represents the minority
shareholders
Part of stockholders' equity
Measured at fair value, based on parent's
acquisition price
Parent pays $40,000 for an 85% interest
Implied value of the full investee is $40,000/85% =
$47,059.
Minority share = 15%(47,059) = $7,059
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
3-26
$400
$500
375
$125
Allocate to:
Building
Goodwill
Total
$50
75
$125
3-27
Elimination Entry
Popo's elimination worksheet entry:
Capital stock (-SE)
200
Retained earnings (-SE)
175
Building (+A)
50
Goodwill (+A)
75
Investment in Sine (-A)
400
Noncontrolling interest (+SE)
100
An unamortized excess account could have been
used for the excess assigned to the building and
goodwill.
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
3-28
Cash
Receivables
Inventory
Building, net
Investment in Sine
Goodwill
Total
Liabilities
Capital stock
Retained earnings
Noncontrolling interest
Total
Popo
BV
$50
130
80
300
400
Sine Adjustments
BV
DR
CR
$10
50
100
240
50
400
75
$960
$400
$150
$25
250
200
200
560
175
175
100
$960
$400
500 3-29500
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
Consolidated
$60
180
180
590
0
75
$1,085
$175
250
560
100
$1,085
6: SUBSEQUENT BALANCE
SHEETS
3-30
3-31
Building
Goodwill
Total
$400
$500
375
$125
Beginning
unamortized
excess
50
75
125
Allocate to:
Building
$50 10 yrs
Goodwill
75 Total
$125
Current year's
amortization
(5)
0
(5)
Ending
unamortized
excess
45
75
120
3-32
After 1 year:
Popo
Cash
$40
Receivables
110
Inventory
90
Building, net
280
Investment in Sine
404
Total
$924
Sine
Popo
Sine
$15 Liabilities
85 Capital stock
$100
$50
250
200
574
185
$924
$435
Total
Popo's elimination worksheet
entry:
Capital stock (-SE)
Retained earnings (-SE)
Unamortized excess (+A)
Investment in Sine (80%) (-A)
Noncontrolling interest (20%) (+SE)
Building (+A)
Goodwill (+A)
Copyright 2012 Pearson Education,
Unamortized excess
(-A) as Prentice Hall
Inc. Publishing
200
185
120
404
101
45
75
3-33
120
After 1 year:
Cash
Receivables
Inventory
Building, net
Investment in Sine
Goodwill
Unamortized excess
Total
Liabilities
Capital stock
Retained earnings
Noncontrolling interest
Total
Popo
BV
$40
110
90
280
404
Sine
BV
$15
85
100
235
Adjustments
DR
CR
45
404
75
120
$924
$100
250
574
$435
$50
200
185
120
200
185
101
$924
$435
Consolidated
$55
195
190
560
0
75
3-34
$1,075
$150
250
574
101
$1,075
3-35
7: AMORTIZATIONS AFTER
ACQUISITION
3-36
Unamortized Excess
Excess assigned to assets and liabilities are
amortized according to the account
Balance sheet
account
Inventories and other
current assets
Buildings, equipment,
patents
Land, copyrights
Long-term debt
Not amortized
Time to maturity
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
Interest expense
3-37
Inventory
Plant
Total
$310
245
$65
Allocate to:
Inventory
Plant
Total
Beginning
unamortized
excess
25
40
65
Current year's
amortization
(25)
(4)
(29)
Amt Amort.
25 1st yr
40 10 yrs
$65
Ending
unamortized
excess
0
36
36
3-38
Plant
Liabilities
Goodwill
Total
Allocate to:
Plant
Liabilities
Goodwill
Total
Beginning
Current year's
unamortized
amortization
excess
60
(15)
(5)
1
35
0
90
(14)
$530
440
$90
Amt Amort.
60 4 yrs
-5 5 yrs
35 $90
Ending
unamortized
excess
45
(4)
35
76
3-39
$185
180
$5
Allocate to:
Amt Amort.
Inventory
10 1st yr
Plant, land
20 -
Bargain purchase
Total
Inventory
Land
Total
Beginning
unamortized
excess
10
20
30
(25) Gain
$5
Current year's
amortization
(10)
0
(10)
Ending
unamortized
excess
0
20
20
3-40
8: CONSOLIDATED INCOME
STATEMENTS
3-41
3-42
$10,200
Allocate to:
$11,333
Inventory
5,900
$5,433
$100 1st yr
Land
200 -
Building
1,000 40 yrs
Equipment
(300) 5 yrs
Note payable
100 1st yr
Unamortize
d excess
1/1/12
Goodwill
Current
Total
amortizatio
n
4,333 Unamortize
$5,433
d excess
12/31/12
Inventory
100
(100)
Land
200
200
Building
1,000
(25)
975
Equipment
(300)
60
(240)
100
(100)
4,333
5,433
(165)
Note payable
Goodwill
Total
3-43
4,333
5,268
Pil
Sad
$9,523.50 $2,200.00
571.50
(4,000.00)
(700.00)
(200.00)
(80.00)
(700.00)
(360.00)
(1,800.00)
(120.00)
(300.00)
(140.00)
$3,095.00
$800.00
Consol.*
$11,723.50
$0.00
(4,800.00)
(305.00)
(1,000.00)
(1,920.00)
(540.00)
Sales
Income from Sad
Cost of sales
Depreciation exp - bldg
Depreciation exp - equip
Other expense
Interest expense
Net income
Total consolidated income
$3,158.50
Noncontrolling interest share
63.50
* Cost of sales,
building
are
Controlling
interest
share depreciation, and interest expense
$3,095.00
increased by $100, $25, and $100, and equipment
depreciation is $60 lower than the sum of Pil and Sad.
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
3-44
3-45
Push-Down Accounting
SEC requirement
Subsidiary is substantially wholly-owned (approx.
90%)
No publicly held debt or preferred stock
Books of the subsidiary are adjusted
Assets, including goodwill, and liabilities revalued
based on acquisition price
Retained earnings is replaced by Push-Down
Capital which includes retained earnings and the
valuation adjustments
Copyright 2012 Pearson Education,
Inc. Publishing as Prentice Hall
3-46
3-47