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Chapter 3. Consolidated Statements Subsequent to Acquisition. Consolidated statements subsequent to acquisition. Worksheet procedures; Purchase Method Using the Income Distribution Schedule Reporting income for the consolidated company. Maintaining the investment account.

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chapter 3

Chapter 3

Consolidated Statements

Subsequent to Acquisition

consolidated statements subsequent to acquisition
Consolidated statements subsequent to acquisition

Worksheet procedures; Purchase Method

  • Using the Income Distribution Schedule
  • Reporting income for the consolidated company
slide4
Price paid: $ 800,000

Interest acquired:

Common stock $ 200,000

Retained earnings 400,000

Total Equity 600,000

Ownership interest 80%480,000

Excess cost 320,000 Life Ann Amort

Inventory (80%  50,000) 40,000 140,000

Building (80%  100,000) 80,000204,000

Goodwill 200,000n/a

subsidiary income and dividends
Subsidiary income and dividends

Income Dividends

Year 1 100,000 10,000

Year 2 150,000 20,000

  • Parent reports only 80% of above amounts
worksheet procedures
Worksheet procedures
  • The RE of the Sub and the Investment account must be at the same point in time
  • The account adjustments made require amortization for current and priorperiods
    • No entries are made on either firm’s books for worksheet eliminations
consolidation procedures for a pooling
Consolidation procedures for a pooling
  • Recall that investment was recorded at amount equal to book value. If this was not the case, correct the investment account.
  • Cost or equity method may be used (sophisticated equity has no application - no excess)
  • There should not be any excess to distribute or amortize - it was just like a purchase at a price equal to underlying subsidiary book value!
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