Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 4, Problem 4.11.3E
To determine
Introduction: Consolidation is the merger or acquisition of small companies into a single large one. In financial accounting, consolidation means an aggregation of financial statements of a group company/different entities and reported at a group level.
To choose: The best option
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When we are preparing consolidated financial statements, will we have to eliminate the parent entity's investment in the subsidiaries each year as part of our consolidation entries, or will we have to do the elimination only in the first year following acquisition, but only thereafter? Why?
Good Limited provided a loan of $1,300,000 to its subsidiary Catch Limited. On consolidation, which of the following adjustments is needed in relation to this intragroup loan?
DR Loan payable to parent $1,300,000 CR Cash $1,300,000
No adjustment needed.
DR Loan receivable from subsidiaries $1,300,000 CR Loan payable to parent $1,300,000
DR Loan payable from parent $1,300,000 CR Loan receivable from subsidiaries $1,300,000
1. what is the basis for consolidation?2. is goodwill being remeasured to fair value at each reporting period? if false, what is the correct answer?3.a. Before consolidation, entity A's retained is how much? 3.b.he consolidated earning is how much?this is the scenario for #3a and b:entity A acquired 90% interest in ENtity B on January 1, 20x1 when entity B's net assets had a fair value of 100. On December 31, 20x2, Entity B's net assets increased to 200 after adjustments for acquisition date fair values, net of depreciation.
Chapter 4 Solutions
Advanced Financial Accounting
Ch. 4 - When is the carrying value of the investment...Ch. 4 - What is a differential? How is a differential...Ch. 4 - Prob. 4.3QCh. 4 - Prob. 4.4QCh. 4 - Prob. 4.5QCh. 4 - Prob. 4.6QCh. 4 - Prob. 4.7QCh. 4 - Prob. 4.8QCh. 4 - Prob. 4.9QCh. 4 - Prob. 4.10Q
Ch. 4 - Prob. 4.11QCh. 4 - What determines whether the balance assigned to...Ch. 4 - What does the termpushdown accountingmean?Ch. 4 - Under what conditions is push-down accounting...Ch. 4 - Prob. 4.15QCh. 4 - Prob. 4.2CCh. 4 - Prob. 4.3CCh. 4 - Prob. 4.4CCh. 4 - Prob. 4.1ECh. 4 - Prob. 4.2ECh. 4 - Prob. 4.3ECh. 4 - Prob. 4.4ECh. 4 - Prob. 4.5ECh. 4 - Prob. 4.6ECh. 4 - Prob. 4.7ECh. 4 - Prob. 4.8ECh. 4 - Prob. 4.9ECh. 4 - Prob. 4.10.1ECh. 4 - Prob. 4.10.2ECh. 4 - Prob. 4.10.3ECh. 4 - Prob. 4.10.4ECh. 4 - Prob. 4.10.5ECh. 4 - Prob. 4.11.1ECh. 4 - Prob. 4.11.2ECh. 4 - Prob. 4.11.3ECh. 4 - Prob. 4.11.4ECh. 4 - Prob. 4.12ECh. 4 - Prob. 4.13ECh. 4 - Prob. 4.14ECh. 4 - Prob. 4.15ECh. 4 - Prob. 4.16ECh. 4 - Prob. 4.17ECh. 4 - Prob. 4.18.1ECh. 4 - Prob. 4.18.2ECh. 4 - Prob. 4.18.3ECh. 4 - Prob. 4.18.4ECh. 4 - Prob. 4.18.5ECh. 4 - Prob. 4.18.6ECh. 4 - Prob. 4.19ECh. 4 - Prob. 4.20ECh. 4 - Prob. 4.21ECh. 4 - Prob. 4.22ECh. 4 - Prob. 4.23ECh. 4 - Prob. 4.24AECh. 4 - Prob. 4.25PCh. 4 - Prob. 4.26PCh. 4 - Prob. 4.27PCh. 4 - Consolidated Balance Sheet Powder Company spent...Ch. 4 - Prob. 4.29PCh. 4 - Prob. 4.30PCh. 4 - Prob. 4.31PCh. 4 - Prob. 4.32PCh. 4 - Prob. 4.33PCh. 4 - Prob. 4.34PCh. 4 - Prob. 4.35PCh. 4 - Prob. 4.36PCh. 4 - Prob. 4.37AP
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- Use the following facts for Multiple Choice problems 18-20. Each of the problems is independent of the other. Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent's and subsidiary's "stand alone" pre-consolidation income statements for the year ending December 31, 2022, prior to any investment bookkeeping or intercompany adjustments: Revenues.. Cost of goods sold Gross profit.. Selling general & administrative expenses. Net income. Parent Subsidiary $5,200,000 $3,250,000 (3,640,000) (1,950,000) 1,560,000 (1,014,000) $546,000 a. b. 1,300,000 (787,800) $ 512,200 On January 1, 2022, neither company held any inventories purchased from the other affiliate. All of the sales made by either company have the same gross margin regardless of whether they are made to affiliates or non-affiliates. The subsidiary declared and paid $260,000 of dividends during 2022. 18. Pre-consolidation bookkeeping, downstream intercompany…arrow_forwardChancellor Limited provided a loan of $1 500 000 to its subsidiary Park Limited. On consolidation, which of the following adjustments is needed in relation to this intragroup loan? No adjustment needed Dr Loan receivable from subsidiaries $1 500 000 Cr Loan payable to parent $1 500 000 Dr Loan payable from parent $1 500 000 Cr Loan receivable from subsidiaries $1 500 000 Dr Loan payable to parent $1 500 000 Cr Cash $1 500 000 Answer (write your correct choice):arrow_forwardTech plc and Cap plc have a joint arrangement in which the former contributes PPEs and the later contributes the cash from its loan with a bank. After 10 years, Tech will keep PPEs and Cap will pay off the debt. Which of the following statements is/are incorrect? (i) IFRS require that Tech plc shall use full consolidation to account for the joint arrangement. (ii) IFRS require that Cap plc shall use the equity method to account for the joint arrangement. (iii) IFRS require that Tech plc and Cap plc shall report their own contributed assets and liabilities on their consolidated statement of financial position.arrow_forward
- Consolidated Worksheet Preparation You will be creating and entering formulas to complete four worksheets. The first objective is to demonstrate the effect of different methods of accounting for the investments (equity, initial value, and partial equity) on the parent company’s trial balance and on the consolidated worksheet subsequent to acquisition. The second objective is to show the effect on consolidated balances and key financial ratios of recognizing a goodwill impairment loss. Project Scenario Pecos Company acquired 100 percent of Suaro’s outstanding stock for $1,450,000 cash on January 1, 2017, when Suaro had the following balance sheet:(THIS IS IN THE PICTURE) Following is the consolidated information worksheet. December 31, 2018, trial balances Pecos Suaro revenues $ (1,052,000) $ (427,000) operating expenses $ 821,000 $ 262,000 goodwill impairment loss ? income of Suaro ? net income ? $…arrow_forwardQuestions: a. How much is the Consolidated Net Income? b. Using the same problem, how much is the Goodwill to be presented in the consolidated financial statements at December 31, 2022? c. Using the same problem, how much is the Consolidated Shareholders’ Equity at December 31, 2022? -------arrow_forwardQuestion (10) 1- Elimination of intra-entity profit or loss may be allocated between the parent and noncontrolling interest. True or False 2- Consolidating entries to eliminate intra-entity transfers of property need to be made only in the year of transfer. True or False 3- In consolidations, downstream sales (from parent to subsidiary) are eliminated, and the intra-entity gain needs to be allocated between the parent and subsidiary. True or False 4- Intra-entity transactions transferring assets subject to depreciation or amortization are handled in the same manner as land transactions each year. True or False 5- Reporting financial statements values reflecting the single entity perspective is the primary objective of consolidating entries. True or Falsearrow_forward
- Outlook Inc. merges with Pinnacle Inc. Only Pinnacle remains. Refer to Fact Pattern 31-1. Outlook held rights in certain real property. With regard to these assets, in the merger Pinnacle assumes a. all of Outlook’s assets. b. an amount of assets equal to the ratio of the firms’ pre-merger market values. c. none of Outlook’s assets. d. only those assets acquired after the merger was proposed.arrow_forwarda.Which of the following statement/s regarding the method of consolidation is true: (1) Subsidiaries are consolidated in full (2) Associates are equity accounted Select one: a. Neither statement b. Statement (1) only c. Both statements d. Statement (2) Q2. Which of the following is a characteristic of the cost method of accounting for subsidiary operations? Select one: a. Parent company net income equals consolidated net income. b. More working paper eliminations are required than for the equity method of accounting. c. Consolidated amounts differ from the comparable amounts under the equity method of accounting. d. None of the above Q3. How soon does goodwill acquired in a business combination need to be tested after an acquisition? Select one: a. The year after acquisition b. The year of acquisition c. Two years after acquisition d. None of the abovearrow_forwardN3. Preparing the [I] consolidation entries for sale of land Assume that during 2015 a wholly owned subsidiary sells land that originally cost $540,000 to its parent for a sale price of $600,000. The parent holds the land until it sells the land to an unaffiliated company on December 31, 2019. The parent uses the equity method of pre-consolidation bookkeeping.arrow_forward
- Choose the correct. A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision?a. It is a relatively easy method to apply.b. Operating results appearing on the parent’s financial records reflect consolidated totals.c. GAAP now requires the use of this particular method for internal reporting purposes.d. Consolidation is not required when the parent uses the equity method.arrow_forwardChancellor Limited provided a loan of $1 500 000 to its subsidiary Park Limited. On consolidation, which of the following adjustments is needed in relation to this intragroup loan? No adjustment needed Dr Loan receivable from subsidiaries $1 500 000 Cr Loan payable to parent $1 500 000 Dr Loan payable from parent $1 500 000 Cr Loan receivable from subsidiaries $1 500 000 Dr Loan payable to parent $1 500 000 Cr Cash $1 500 000arrow_forwardChoose the correct. A subsidiary has a debt outstanding that was originally issued at a discount. At the beginning of the current year, the parent company acquired the debt at a slight premium from outside parties. Which of the following statements is true?a. Whether the balances agree or not, both the subsequent interest income and interest expense should be reported in a consolidated income statement.b. The interest income and interest expense will agree in amount and should be offset for consolidation purposes.c. In computing any noncontrolling interest allocation, the interest income should be included but not the interest expense.d. Although subsequent interest income and interest expense will not agree in amount, both balances should be eliminated for consolidation purposes.arrow_forward
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