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Investment Accounting
Method Equity Investment Account Income Account Continually adjusted Income accrued as to reflect ownership earned; amortization of acquired company. and other adjustments are recognized. Remains at InitiallyRecorded cost Adjusted only for accrued income and dividends received from acquired company. Cash received is recorded as Dividend Income Income accrued as earned; no other adjustments recognized.
Initial Value
Partial Equity
FMV adjustments and other intangible assets, The parents share of the subs income (loss), and The receipt of dividends from the sub.
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1. No adjustments are recorded in the Investment account for current year operations, dividends paid by the subsidiary, or amortization of purchase price allocations. 2. Dividends received from the subsidiary are recorded as Dividend Revenue.
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So, the Investment and Income account balances will differ from the other methods, and so will worksheet Entries I and D.
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addition to the Entries S, A, I, D, & E, we will also eliminate intercompany payables or receivables.
AND, if control acquired is less than 100%, an additional adjustment must be made (see Chapter 4).
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No matter which method the Parent chooses to record the Subs activity, the consolidated totals end up the SAME! This is because we are eliminating all the entries that we made during the year, regardless of the method used, and regardless of the amount!
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We will adjust goodwill on the consolidated balance sheet if: 1.We sell all or part of the related subsidiary, or 2.We determine that there has been a permanent decline in value (in which case we record the impairment as an extraordinary item).
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amount of the payment, times The likelihood it will be paid, times, A factor for the time value of money (represented as [1 / (1+%)]