Business combination: Business combination refers to the combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After the business combination, the entities having separate control merges into one. They then have a control over all the assets and liabilities. Merging and acquisition are types of business combinations. Consolidated financial statements: The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merge to form the new entity. The consolidated financial statements serve the purpose of financial information for/about both the entities. Equity method of recording the investment: The equity method is used by the entities to assess the increase or decrease in their investment made in other entities. The equity method is used when the acquiring company is having significant influence over the other entity. The criteria for determining whether the investor should apply the equity method of accounting to this investment or not is as follows: The investor should invest at least 20% or it should acquire at least 20% of the investee’s share. The investor should be able to exercise the significant influence over the investee. If the above two conditions are fulfilled, then the organization can use the equity method. : To prepare: the entry which would be made on the consolidated worksheet to eliminate the investment.

Question

Want to see the full answer?

Answer 1

Question

Chapter 2, Problem 9.4E

To determine

Business combination:

Business combination refers to the combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After the business combination, the entities having separate control merges into one. They then have a control over all the assets and liabilities. Merging and acquisition are types of business combinations.

Consolidated financial statements:

The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merge to form the new entity. The consolidated financial statements serve the purpose of financial information for/about both the entities.

Equity method of recording the investment:

The equity method is used by the entities to assess the increase or decrease in their investment made in other entities. The equity method is used when the acquiring company is having significant influence over the other entity. The criteria for determining whether the investor should apply the equity method of accounting to this investment or not is as follows:

The investor should invest at least 20% or it should acquire at least 20% of the investee’s share.

The investor should be able to exercise the significant influence over the investee.

If the above two conditions are fulfilled, then the organization can use the equity method.

:

To prepare: the entry which would be made on the consolidated worksheet to eliminate the investment.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Write down as many descriptions describing rock and roll that you can. From these descriptions can you come up with s denition of rock and roll? What performers do you recognize? What performers don’t you recognize? What can you say about musical inuence on these current rock musicians? Try to break these inuences into genres and relate them to the rock musicians. What does Mick Jagger say about country artists? What does pioneering mean? What kind of ensembles w

Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's expenses, Gross margin, and Net income?

Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's assets, Liabilities, and Equity?