Chapter 3 "Consolidations - Subsequent to the date of acquisition", after studying this chapter, you should be able to: Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time, identify and describe the various methods available to a parent company in order to maintain its investment in subsidiary account in its internal records, understand that a parent’s internal accounting method for its subsidiary investments has no effect on the resulting consolidated financial statements. | Chapter Three Consolidations - Subsequent to the Date of Acquisition Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Consolidations – Subsequent to the Date of Acquisition Consolidation – The Effects of the Passage of Time The passage of time creates complexities for internal record keeping and the balance of the investment account varies due to the accounting method used. A worksheet and consolidation entries are used to eliminate the investment account and record the subsidiary’s assets and liabilities to create a single set of financial statements for the combined business entity. LO 1 3- Consolidation – The Effects of the Passage of Time The passage of time creates complexities for internal record keeping and the balance of the investment account varies due to the accounting method used. A worksheet and consolidation entries are used to eliminate the investment account and record the subsidiary’s assets and liabilities to create a single set of financial statements for the combined business entity. Investment Accounting by Acquiring Company The acquiring company selects one of these three methods to account for its investment: LO 2 Equity Method Initial Value Method Partial Equity Method For each subsidiary owned, there is an asset, the investment account, and an income account to record the earnings on the investment. 3- Investment Accounting by Acquiring Company The acquiring company selects one of these three methods to account for its investment: Equity Method Initial Value Method Partial Equity Method Investment Accounting by Acquiring Company Comparison of internal reporting of investment methods. Method Investment Income Account Equity Continually adjusted to reflect ownership of acquired company. Income accrued as earned; amortization and other adjustments are recognized. Initial Value Remains at Initially-Recorded cost Cash received is recorded as Dividend Income Partial Equity Adjusted only for . | Chapter Three Consolidations - Subsequent to the Date of Acquisition Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Consolidations – Subsequent to the Date of Acquisition Consolidation – The Effects of the Passage of Time The passage of time creates complexities for internal record keeping and the balance of the investment account varies due to the accounting method used. A worksheet and consolidation entries are used to eliminate the investment account and record the subsidiary’s assets and liabilities to create a single set of financial statements for the combined business entity. LO 1 3- Consolidation – The Effects of the Passage of Time The passage of time creates complexities for internal record keeping and the balance of the investment account varies due to the accounting method used. A worksheet and consolidation entries are used to eliminate the investment account and record the subsidiary’s assets and liabilities to create a .
