The parent’s book value plus the subsidiary’s book value plus the $130,000 acquisition-date fair value allocation less current year amortization of $13,000. Application of either the initial value method or the partial equity method has no effect on this basic process. If item of property, plant and equipment is acquired on cash basis then its a simple transaction of one asset increasing and the other decreasing. The parent’s Equity in Subsidiary Earnings account is, therefore, an accurate rep­resentation of Sun’s effect on consolidated net income. -After the initial year of acquisition, an Entry *C is required if the parent has not applied the equity method. 1 700 000 : The identifiable assets and liabilities (*) are measured at their respective fair values at the acquisition date. Let’s say we bought a subsidiary with the below TB at acquisition date. vi. Thus, throughout this textbook, “Entry S” always refers to the removal of the subsidiary’s beginning stockholders’ equity balances for the year against the book value portion of the investment account. on acquisition) Entry 1b Dr Property, plant and equipment 100,000 Cr Revaluation surplus 70,000 Cr Deferred tax liability 30,000 (Increase value of “undervalued” P.P.E. Cost of the consideration was £1,700,000. Push-Down Accounting. Content Guidelines 2. The $80,000 residual is attributed to goodwill. The consolidated financial statements will show the subsidiary’s assets at fair market values as of the date of the acquisition, as well as the purchase goodwill. 4 Consolidation journals at the date of acquisition (30/06/2018) Entry 1a Dr Accumulated depreciation – PP&E 270,000 Cr Property, plant and equipment 270,000 (Write back accumulated depreciation of revalued P.P.E. Thus, any time after the acquisition date, accounting for these three balances is of special importance. Until the FASB takes action, though, application is required only when the subsidiary desires to issue securities (stock or debt) to the public as regulated by the SEC. Following SFAS 142, such assets are not amortized but are subject to periodic impairment testing. This entry is labeled “Entry A” to indicate that it represents the Allo­cations made in connection with the excess of the subsidiary’s fair values over its book values. Other Consolidation Entries In addition to the Entries S, A, I, D, E, and *C, intercompany debt (payables and/or receivables) must be eliminated in entry P. At acquisition date, the BCVR entries will recognise an increment to land of $5 000, a deferred tax liability of $1 500 and a BCVR of $3 500. Parrot’s application of the equity method created a parallel effect on its Investment in Sun Company account (the income accrual of $330,000 less dividends collected of $110,000). During the same period the parent recognizes a $93,000 equity income figure (the $100,000 earnings accrual less the $7,000 excess amortization expenses). For this consolidation, assume that the January 1, 2012, Sun Company’s Retained Earnings balance has risen to $600,000. Capital Profit / Pre-acquisition Profit, and Revenue Profit/Post-acquisition Profit/Current Profit: Profit and Loss Account balance (including Reserves) of subsidiary company must be allocated between Pre-acquisition and Post-acquisition periods, i.e., prior to acquisition and post/after acquisition. Under the acquisition method, each of the three elements of consideration represents a portion of the negotiated fair value of Rosy Pictures and therefore must be included in the recorded value entered on Skeptical’s accounting records. Worksheet entries are the catalyst for developing totals to be reported by the entity but are not physically recorded in the individual account balances of either company. Assume that Sun earns income of $100,000 during the year and pays a $40,000 cash dividend on August 1, 2009. Consolidation: Eliminating Journal Entries- Acquisition Date vs Year End My question is If you purchased a company say at 3/31/2014 and applied the EJE's @ acquisition date , would you have to apply the EJE's again at Year End (to account for the subsidiary's income/dividends after 3/31)? Because equity adjustments (such as excess amortizations) are ignored, neither Parrot’s reported net income of $640,000 nor its retained earnings of $1,360,000 provides an accurate portrayal of consolidated figures. Investment in Sun Company = -0-. For post—5K4S 141R combinations, the parent records the investment account using its share of the subsidiary fair value recognized at acquisition (usually the fair value of the consideration transferred by the parent). Exhibit 3.12 provides a complete presentation of the consolidation of Parrot and Sun as of December 31, 2012, based on the parent’s application of the initial value method. One aspect of this amortization schedule warrants further explanation. As indicated previously, the consolidated totals appearing in Exhibit 3.9 are identical to the figures produced previously in Exhibit 3.5. In fact, Mergers & Acquisitions recently reported 154 deals totaling $13.9 billion of which $4.3 billion was in the form of a contingency. 320 000. However, the SFAS 141R acquisition method now requires a newly acquired subsidiary to be recorded using fair values, not costs. By cross-casting the net assets of each company, and cancelling the investment in S against the share capital and reserves of S, we arrive at the consolidated statement of financial position … As a basis for analyzing the procedural changes necessitated by the passage of time, assume that Parrot Company continues to hold its ownership of Sun Company as of December 31, 2012. Therefore, from a consolidated view, the buyer’s Inventory and the seller’s Retained Earnings accounts as of the beginning of Year 2 contain the unrealized profit, and must both be reduced in Entry *G. Having been recorded in this manner, these two balances form a permanent part of Parrot’s retained earnings and are included automatically in the consolidated total. Thus, Entry C should be recorded before the other worksheet entries to align the beginning balances for the year. Trademarks = $820,000. Members of the subsidiary’s management could argue that they are being forced to record a large expense over which they have no control or responsibility. For example, it simpli­fies the consolidation process. account (by manual or automatic journal entry): Figure 1- Report C46-45 Check calculation of goodwill and bargain purchase Manual journal entry (see below) S1’s net equity at the acquisition date Direct rate of P1 in S1 calculated in the portfolio Investment price declared by P1 Theoretical calculation of goodwill in local currency is As with the previous Entry S in Exhibit 3.5, the $600,000 component of the investment account is eliminated against the beginning stockholders’ equity account of the subsidiary. Does anyone know how: 1. The Dividend Paid account is simply deleted. The entire $40,000 payment was made to the parent so that, from the view­point of the consolidated entity, it is simply an intercompany transfer of cash. More important, push-down accounting provides better information for internal evaluation. Subsequent Consolidation—Investment Recorded by the Equity Method: Consolidation the Effects Created by the Passage of Time, Investment Accounting by the Acquiring Company, Subsequent Consolidation—Investment Recorded by the Equity Method, Subsequent Consolidation Investment Recorded Using Initial Value or Partial Equality Method. Also, Skeptical’s stock price had fallen to $54.45 at January 1, 2010, thus requiring Skeptical to issue another 101 shares of its $5 par common stock to the former owners of Rosy Pictures. Problem 3-38 (LO 3-4, 3-6) On January 1, Prine, Inc., acquired 100 percent of Lydia Company's common stock for a fair value of $130,869,000 in cash and stock. Because both the resulting investment balance and the related income are eliminated as part of every recurring consolidation, the selection of a particular method does not affect the totals ultimately reported for the combined companies. Retained earnings, 12/31/09 = $1,413,000. Step 2: Determine the acquisition date. Thus, Ace Corporation’s officials know that this acquisition has added $500,000 to the consolidated net income of the business combination. Intercompany dividends are removed with the same treatment required for the debt existing between the two companies. The series of entries just described successfully brings together the separate financial statements of these two organi­zations. SFAS 141R—Accounting for Contingent Consideration in Business Combinations: Under the acquisition method contingent consideration obligations are recognized as part of the initial value assigned in a business combination, consistent with the fair-value concept. Patented technology — $775,000. To illustrate the modifications required by the adoption of an alternative accounting method, the consolidation of Parrot and Sun as of December 31, 2009, is reconstructed. the consolidation currency Package data entry Enter the purchase price in schedules PA2100 and PA2300 P Enter the date for the acquisition on schedules PA2350 if the parent¶s currency is different from the consolidation currency Consolidation scope Enter the new financial rate of the subsidiary P Manual journal entries: Intercompany dividend income is removed (Entry I) and current year excess amortization expenses are recognized (Entry E). Because the equity method has been applied, Parrot’s receipt of this money was recorded originally as a decrease in the Investment in Sun Company account. Because of the passage of time, the income effects (e.g., amortizations) of these allocations must also be recognized within the consolidation process. The same $100,000 equity income figure appears within the parent’s income statement. I understand this no problem. Total liabilities and equities = $3,561,000. Before moving to the next consolidation entry, a clarification point should be made. After Entry C has been recorded on the worksheet, the remainder of this consolidation follows the same pattern as previous examples. In the initial consolidation (2009), fair-value allocations amounting to $200,000 were entered, but these balances have now undergone three years of amortization. Note that goodwill is not amortized. 2. Acquisition date indicators. xii. If the subsidiary is to be viewed as a new entity with a new basis for its assets and liabilities, should Retained Earn­ings be returned to zero? Exhibit 3.5 provides a complete presentation of the December 31, 2009, consolidation worksheet developed for Parrot Company and Sun Company. The resulting current year combined income figure is then added to the adjusted beginning of the year retained earnings to arrive at a full accrual ending retained earnings balance. This allows management to analyze the subsidiary’s results without the effect of amortization.”, Accounting, Business, Consolidations, Consolidations Subsequent to the Date of Acquisition. Subsequent to acquisition, obligations for con­tingent consideration that meet the definition of a liability will continue to be measured at fair value with adjustments recognized in income. The consolidation process is made a bit simpler by segregating the effect of preceding operations from the transactions of the current year. Consolidation offers no real problem here: The building will be reported by the business combination at $900,000. A worksheet provides an organized structure for this process, a benefit that becomes especially important in consolidating complex combinations. 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