Chapter 4 - Consolidated financial statements after acquisition. In this chapter you will find out about how consolidated financial statements – the combined statements of the parent company and all of its subsidiaries – are prepared at the end of the first and subsequent years after acquisition. | Consolidated Financial Statements After Acquisition 1 Learning Objectives Describe the accounting treatment required under current GAAP for varying levels of influence or control by investors. Prepare journal entries on the parent’s books to account for an investment using the cost method, the partial equity method, and the complete equity method. Understand the use of the workpaper in preparing consolidated financial statements. Prepare a schedule for the computation and allocation of the difference between implied and book values. 2 Learning Objectives Prepare the workpaper eliminating entries for the year of acquisition (and subsequent years) for the cost and equity methods. Describe how to account for interim acquisitions of subsidiary stock at the end of the first year. Explain how the consolidated statement of cash flows differs from a single firm’s statement of cash flows. Understand how the reporting of an acquisition on the consolidated statement of cash flows differs when stock is issued instead of cash payment. Describe some of the differences between . GAAP and IFRS in accounting for equity investments. 3 Investments in Stock Investments in voting stock may be consolidated, or separately reported at cost, fair value, or carrying value of equity. The method of reporting adopted depends on a number of factors including size of investment extent to which the investor exercises control over activities of the investee marketability of the securities. 4 Accounting for Investments by the Cost, Partial Equity, and Complete Equity Methods 0 --------------20% ------------ 50% -------------- 100% 5 No significant influence Significant influence (no control) Effective control Investment valued using the “cost” method but with adjustments to fair value. Investment measured under equity method Investment recorded using cost method or equity method (investment eliminated in consolidation) Ownership Percentages LO 1 Varying levels of ownership are accounted for . | Consolidated Financial Statements After Acquisition 1 Learning Objectives Describe the accounting treatment required under current GAAP for varying levels of influence or control by investors. Prepare journal entries on the parent’s books to account for an investment using the cost method, the partial equity method, and the complete equity method. Understand the use of the workpaper in preparing consolidated financial statements. Prepare a schedule for the computation and allocation of the difference between implied and book values. 2 Learning Objectives Prepare the workpaper eliminating entries for the year of acquisition (and subsequent years) for the cost and equity methods. Describe how to account for interim acquisitions of subsidiary stock at the end of the first year. Explain how the consolidated statement of cash flows differs from a single firm’s statement of cash flows. Understand how the reporting of an acquisition on the consolidated statement of cash flows differs when .
