Loose Leaf Advanced Accounting with Connect Access Card
12th Edition
ISBN: 9781259184741
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
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Chapter 1, Problem 5DYS
1.
To determine
Explain the protective non-controlling rights.
2.
To determine
Explain the substantive participating non-controlling rights.
3.
To determine
Explain the non-controlling rights which overcome the presumption that all majority-owned investees should be consolidated.
4.
To determine
Explain issues in determining whether Zee should consolidate Bee or report its investment in Bee under the equity method.
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Consolidated financial reporting is appropriate when one entity has a controlling financial interest in another entity. The usual condition for a controlling financial interest is ownership of a majority voting interest. But in some circumstances, control does not rest with the majority owner-especially, when noncontrolling owners are contractually provided with approval or veto rights that can restrict the actions of the majority owner. In these cases, the majority owner employs the equity method rather than consolidation.
Required
Address the following by searching the FASB ASC Topic 810 on consolidation.
What are protective noncontrolling rights?
What are substantive participating noncontrolling rights?
What noncontrolling rights overcome the presumption that all majority-owned investees should be consolidated?
Zee Company buys 60 percent of the voting stock of Bee Company with the remaining 40 percent noncontrolling interest held by Bee's former owners, who negotiated the…
Some advantages of obtaining control by acquiring a controlling interest in stock include all
but:
O The cost may be lower since only a controlling interest in the assets, not the total assets, is acquired.
O The legal liability of each corporation is limited to its own assets.
O Negotiations are made directly with the acquiree's management.
O Tax advantages may result from preservation of the legal entities.
Answer with true or false. No need explanation.
1. Indirect cost incurred by the entity in business combination is recognized as expense.
2. PFRS 10 defines control as the power to govern the financial and operating policies as to obtain benefits from its activities.
3. An investor has no power over the investee even if the investor holds the majority of the voting rights if those rights are not substantive.
4. A subsidiary should be excluded from the consolidated statements if the subsidiary operates under governmentally impose uncertainty.
Chapter 1 Solutions
Loose Leaf Advanced Accounting with Connect Access Card
Ch. 1 - A company acquires a rather large investment in...Ch. 1 - Prob. 2QCh. 1 - Why does the equity method record dividends from...Ch. 1 - Prob. 4QCh. 1 - Smith. Inc., has maintained an ownership interest...Ch. 1 - Prob. 6QCh. 1 - Because of the acquisition of additional investee...Ch. 1 - Prob. 8QCh. 1 - Prob. 9QCh. 1 - Prob. 10Q
Ch. 1 - In a stock acquisition accounted for by the equity...Ch. 1 - Prob. 12QCh. 1 - What is the difference between downstream and...Ch. 1 - Prob. 14QCh. 1 - Prob. 15QCh. 1 - What is the fair-value option for reporting equity...Ch. 1 - When an investor uses the equity method to account...Ch. 1 - Which of the following does not indicate an...Ch. 1 - Prob. 3PCh. 1 - Under fair-value accounting for an equity...Ch. 1 - When an equity method investment account is...Ch. 1 - Prob. 6PCh. 1 - Prob. 7PCh. 1 - Prob. 8PCh. 1 - Prob. 9PCh. 1 - Prob. 10PCh. 1 - Prob. 11PCh. 1 - Prob. 12PCh. 1 - Prob. 13PCh. 1 - Prob. 14PCh. 1 - Prob. 15PCh. 1 - Prob. 16PCh. 1 - Prob. 17PCh. 1 - Prob. 18PCh. 1 - Prob. 19PCh. 1 - Prob. 20PCh. 1 - Prob. 21PCh. 1 - Prob. 22PCh. 1 - Prob. 23PCh. 1 - Prob. 24PCh. 1 - Prob. 25PCh. 1 - Prob. 26PCh. 1 - Prob. 27PCh. 1 - Prob. 28PCh. 1 - Prob. 29PCh. 1 - Prob. 30PCh. 1 - Prob. 31PCh. 1 - Prob. 32PCh. 1 - Prob. 33PCh. 1 - Prob. 1DYSCh. 1 - Access The Coca-Cola Companys SEC 10-K filing at...Ch. 1 - Prob. 4DYSCh. 1 - Prob. 5DYS
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- Which of the following is an example of protective rights? Rights to appoint or remove another entity that directs the relevant activities The right of a party holding a non-controlling interest in an investee to approve the issue of equity or debt instruments Rights to veto any changes for the benefit of the investor All of the choicesarrow_forwardWhat is a controlling financial interest? How did the FASB define this in FIN 46(R)? What are typical difficulties in ascertaining whether control exists where perhaps no voting interest is actually maintained? Please choose a recent business combination and address what you feel their motives were for the combination. Do you see any problems with their decision to combine?arrow_forwardConsolidated financial statements are required in which ofthe following situations?a. Only when a company can exert significant influenceover another company.b. Only when a company has a passive investment inanother company.c. Only when a parent company can exercise control overits subsidiary.d. None of the above.arrow_forward
- Answer with true or false. 1. The non-controlling interest is presented in the statement of financial position as an asset. 2. Foreign subsidiaries need not be consolidated in preparing the consolidated financial statements if they are reported as a separate operating group under segment reporting. 3. Consolidated financial statements is needed if the investor has significant influence over the investee company.arrow_forwardList the potential conflict of interests between shareholders, executives and other stakeholders due to share repurchase.arrow_forwardWhich of the following statements is consistent with the principle of control as defined by IFRS 10 Consolidated Financial Statements? a. The investor must be exposed to a return from the investee. b. The investor has the ability to use its power over the investee to affect the amount of the returns from the investee. c. An investor yet to direct the relevant activities of an investee has no power over the investee. d. An investor cannot have control over an investee if another investor has existing rights to participate in the direction of the relevant activities.arrow_forward
- 26 S1: Consolidated financial statements are typically prepared when one company has controlling financial interest unless such control is likely to be temporary.S2: Acquisition related costs in a business combination includes professional or consultancy fees, costs of registering and issuing debt and equity securities and general administrative costs. Group of answer choices False; False False; True True; False True; Truearrow_forwardWhich one of the following is prime objective of holding company? To create monopoly company To control investments of competitors To hold shares and manage other companies To restrict the rights of other companiesarrow_forwardWhich of the following is closest to IFRS 3 Business Combinations definition of control? A company is deemed to have control over another only when it owns a majority of the voting shares of another company. B. A company is deemed to have control when it can elect a majority of the Board members of another company. C. Control is the ability to direct the activities of a company that most significantly affect the investor's returns. D. Control exists only when a company has the continuing power to determine the operating and financing policies of another company and attempts to exercise such powers.arrow_forward
- In Chapter 3 of our text, we learn about the concept of “control”, as it relates to consolidations. Specifically, control refers to the situation where a parent company owns a controlling financial interest in another company, whether that company is incorporated or not (such as a trust or partnership). Consolidation of entities that are not majority-owned is opposed by some companies, particularly biotechnology and pharmaceutical concerns, whose financial strength could be hurt by reporting consolidated financials. Accounting professionals have argued that some firms deliberately avoid consolidating results by owning less than 50% of the voting stock in an entity, even though they effectively control it by hiring and firing management. In what instances would a company want to consolidate an entity of which the company owns less than 50%? Discuss ways that a company can control another with less than majority ownership.arrow_forwardWhich one of the following is the least likely reason a company may acquire an ownership interest in another company? Select one: a.To benefit form an overvaluing of assets in the investee company b. To oust an inefficient management team c. To take advantage of operating and/or cost synergies d. To exercise an active role in the business' activitiesarrow_forwardIdentify the option that you would consider to be among the disadvantages of forming a limited company.a) Legal control and stringent requirements that have to be compliedb) The need to entrust control and decisions to a fewc) Restrictions on return of capital if in excess of company’s requirementsd) The ease with which the share of ownership could be disposed of Select one: A. b, c & d B. c & d C. a, b & c D. a, c & darrow_forward
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