Consolidation of Statements:
In today’s world of business acquisition of smaller companies is common and such acquisitions helps in the growth of the parent company. Once a company acquires another company the net assets of the other company is recorded in the books of the parent company. Consolidation of financial statements of both the parent company and subsidiary company is important for the stockholders of the parent company. A parent company may choose any of the two basic methods for consolidation and they are the equity method or cost method. The accounting methods used by a parent company for consolidation is purely based on their convenience.
Analyse whether the consolidated net income of the two affiliated companies could exceed the sum of their individual net income.
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Advanced Accounting
- 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 abovearrow_forwardWhat is the noncontrolling interest in Subsidiary income? Select one: a. The portion of Subsidiary income that is not included in consolidated income b. The allocation of difference between fair value and book value c. The difference between Parents reported income and Subsidiary reported income d. The part of Subsidiary income that is owned by shareholders other than Parentsarrow_forwardConsolidated Net Income is equal to: Multiple Choice the sum of the net incomes of both the parent and its subsidiaries less any inter-company dividends. the parent's net income excluding any income arising from its investment in the Subsidiary, plus the net income of the subsidiary less the amortization of the acquisition differential and the impairment of goodwill. the parent's net income excluding any income arising from its investment in the subsidiary. the sum of the net incomes of both the parent and its subsidiaries.arrow_forward
- Hi, may i know more clearer explanation to calculate the gain or loss on the disposal of the share between parent and subsidiaries ? plagiarism is not allowed.arrow_forwardCorporate taxable income is based on an income statement that is similar to income statements prepared for financial reporting. It has Revenues less expenses equals income. How is the computation for personal taxable income different from this income statement concept? Why do you think these differences exist?arrow_forwardWhich of the following statements is incorrect? Earnings and profits are conceptually similar to retained earnings. A distribution from earnings and profits in excess of stockholder basis is a nontaxable return of capital. A distribution of appreciated property creates a gain to the corporation. Distributions paid in excess of earnings and profits are nontaxable to the extent of stockholder basis.arrow_forward
- How should negative goodwill be shown on the consolidated financial statements of the acquirer? Group of answer choices As a liability on the statement of financial position As a loss on the statement of comprehensive income As a separate amount under shareholders' equity on the statement of financial position As a gain on the statement of comprehensive incomearrow_forwardWhat is meant by the term "pass through entity"? Select one: a. The entity is subject to double level income tax b. All of these are correct C. The products that are produced by the entity are passed down to lower level producers to add value d. The profits pass down to the owners to pay tax only at the ownership levelarrow_forwardUnder the cost method, dividends from the subsidiary to the parent Ⓡ a. are recognized in income when received. b. are recognized in income when declared. c. are recognized in income when paid. Od. do not affect income. Save Answerarrow_forward
- Which of the following accounting treatments for costs related to business combination is incorrect? Group of answer choices The costs related to issuance of financial liability at fair value through profit or loss shall be recognized as expense while those related to issuance of financial liability at amortized cost shall be recognized as deduction from the book value of financial liability or treated as discount on financial liability to be amortized using effective interest method. The costs related to issuance of stock or equity securities shall be deducted/debited from any share premium from the issue and any excess is charged to “share issuance cost” reported as contract-equity account against either (1) share premium from other share issuances or (2) retained earnings Acquisition related costs such as finder’s fees; advisory, legal, accounting, valuation and other professional and consulting fees; and general administrative costs, including the costs of maintain an…arrow_forward7.) If the amount paid by an investor (parent) is less than the proportional total of the estimated fair value of investee's (subsidiary's) assets acquired and liabilities assumed, the difference is recorded as ... a. Negative goodwill in the balance sheet of the investor. b. Gain from a bargain purchase in the income statement of the investor. Gain from a bargain purchase in the income statement of the investee. d. Allocated as a reduction to each of the asset and liability accounts when applying consolidation accounting by the investor. c.arrow_forwardwhen multiplying companys tax rate with any firms accounting income , the result is always different with income tax expense . why ??arrow_forward