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Chapter 3

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

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  1. Chapter 3 Consolidated Statements Subsequent to Acquisition

  2. Consolidated statements subsequent to acquisition Worksheet procedures; Purchase Method • Using the Income Distribution Schedule • Reporting income for the consolidated company

  3. Maintaining the investment account

  4. 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

  5. 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

  6. Parent recording of subsidiary income (year 1)

  7. Parent recording of subsidiary income (year 2)

  8. 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

  9. Cost Method: Year 1

  10. Cost Method: Year 2

  11. 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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