Académique Documents
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Parent Company Subsidiary
Relationships
3
Parent Company Subsidiary
Relationships
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Parent Company Subsidiary
Relationships
5
Nature of
Consolidated Financial Statements
Similar to the combined financial statements for a
home office and its branches.
Assets, liabilities, revenue, and expenses of the parent
company and its subsidiaries are totaled; inter-
company transactions and balances are eliminated;
and the final consolidated amounts are reported in the
balance sheet, income statements, statement of
stockholders equity, and statement of cash flows.
However, the separate legal entity status of the parent
and subsidiary corporations necessitates eliminations
that are generally more complex.
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Should All Subsidiaries Be
Consolidated?
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The Meaning of Controlling Interest
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The Meaning of Controlling Interest
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The Meaning of Controlling Interest
11
Criticism of
Traditional Concept of Control
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Criticism of
Traditional Concept of Control
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FASBs Proposed Definition of
Control
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FASBs Proposed Definition of
Control
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FASBs Proposed Definition of
Control
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FASBs Proposed Definition of
Control
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
20
Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
21
Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
P Corp. S Comp
Income Statements
Revenue:
Net Sales $990,000 $600,000
Interest Revenue 10,000
Total Revenue $1,000,000 $600,000
Costs and Expenses:
Cost of Goods Sold $635,000 $410,000
Operating Expenses 158,333 73,333
Interest Expense 50,000 30,000
Income Taxes Expense 62,667 34,667
Total Costs and Expenses $906,000 $548,000
Net Income $94,000 $52,000
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
P CORPORATION AND S COMPANY
Separate Financial Statements ( prior to business combination)
For Year Ended December 31, 2002
P Corp. S Comp
Balance Sheets
Assets
Cash $100,000 $40,000
Inventories $150,000 $110,000
Other Current Assets 110,000 $70,000
Receivable from S Company $25,000
Plant Assets (Net) $450,000 $30,000
Patent (Net) $20,000
Total Assets 835,000 540,000
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
25
Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
P Corporation ( combinor)
Journal Entries
31-Dec-02
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
Le dge r Accounts of Combinor Affe cte d by Busine ss Combina tion
Ca sh Account
Da te Ex pla na tion De bit Cre dit Ba la nce Dr/Cr
2002
Dec. 31 Balance Forward 100,000 Dr.
Dec. 31 Out-of-Pocket Costs of business combination 85,000 15,000 Dr.
Common Stock, $ 10 Pa r
Da te Ex pla na tion De bit Cre dit Ba la nce Dr/Cr
2002
Dec. 31 Balance Forward 300,000 Cr.
Issuance of Common Stock in business
Dec. 31 combination 100,000 400,000 Cr.
Pa id-In-Ca pita l in Ex ve ss of Pa r
Da te Ex pla na tion De bit Cre dit Ba la nce Dr/Cr
2002
Dec. 31 Balance Forward 50,000 Cr.
Issuance of Common Stock in business
Dec. 31 combination 350,000 400,000 Cr.
Costs of issuing common stock in business
Dec. 31 combination 35,000 365,000 Cr.
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
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Consolidation Of Wholly Owned
Subsidiary On Date Of Business
Combination
P CORPORATION AND S COMPANY
Consolida ted Balance She et
31-Dec-02
Assets
Current Assets
Cash ($15,000+$40,000) $55,000
Inventories ($150,000+ $135,000) 285,000
Other ($110,000 + $ 70,000) 180,000
Total Current Assets $520,000
Plant Assets (net) ($450,000 + $365,000) 815,000
Intangible Assets:
Patent (net) ($0 + $25,000) 25,000
Goodwill 15,000 40,000
Total Assets 1,375,000
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Working Paper for
Consolidate Balance Sheet
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Working Paper for
Consolidate Balance Sheet
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Working Paper for
Consolidate Balance Sheet
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Working Paper for
Consolidate Balance Sheet
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Working Paper for
Consolidate Balance Sheet
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Working Paper for
Consolidate Balance Sheet
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Consolidation of Partially Owned
Subsidiary
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Consolidation of Partially Owned
Subsidiary
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Consolidation of Partially Owned
Subsidiary
Because of the complexities caused by minority
interest in the net assets of a partially owned
subsidiary and the measurement of goodwill acquired
in the business combination, it is advisable to use a
working paper for preparation of a consolidated
balance sheet for a parent company and its partially
owned subsidiary on the date of the business
combination. The format of the working paper is
identical to that used in preparation of consolidated
balance sheet of a parent company with wholly owned
subsidiary.
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Consolidation of Partially Owned
Subsidiary
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Consolidation of Partially Owned
Subsidiary
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Nature of Minority Interest
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Nature of Minority Interest
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Nature of Minority Interest
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Alternative Methods For Valuing
Minority Interest And Goodwill
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Alternative Methods For Valuing
Minority Interest And Goodwill
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Alternative Methods For Valuing
Minority Interest And Goodwill
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Alternative Methods For Valuing
Minority Interest And Goodwill
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