ACC405 Final

In preparing consolidated financial statements, the gross profit or loss recorded by individual affiliates for intra-entity asset transfers is

Excluded from net income

Excluded from inventory in the consolidated balance sheet

Inventory transfers among affiliates within a consolidated entity

Create neither profits nor losses to the consolidated entity

Produce accounting effects that are eliminated in the preparation of consolidated financial statements

Markup on Cost Formula

GP / COGS

When the parent employs the equity method of accounting for its Investment in Subsidiary account, in consolidated financial reports the parent's Retained Earnings account will equal

consolidated retained earnings

A parent transfers inventory with a cost of $425,000 to its subsidiary at a transfer price of $500,000. The subsidiary resold the entire purchase to outsiders before year-end. For the current year consolidated financial statement, how much gross profit should be deferred by Consolidation Entry G?

0 - because the entire purchase was resold

A parent transfers inventory with a cost of $425,000 to its subsidiary at a transfer price of $500,000. The subsidiary resold 50% of this transferred inventory to outsiders before year-end. For the current year consolidated financial statement, how much gross profit should be deferred by Consolidation Entry G?

500,000 - 425,000 = 75,000 total intercompany profit

75,000 × 50% = 37,500

The accounting effects of inventory sales across companies within a consolidated entity are removed when preparing consolidated financial statements because

• From a consolidated perspective, neither a sale nor a purchase has occurred.

• Intra-entity inventory transfers create no net change in the financial position of the consolidated reporting entity.

• Consolidated statements reflect only transactions with outside parties.

How does the ASC describe the effect of intra-entity gross profit remaining in ending inventory on the noncontrolling interest?

Any intra-entity income or loss may be allocated between the parent and noncontrolling interest.

A consolidated balance sheet reports noncontrolling interests as

a component of owner’s equity

A noncontrolling interest in a consolidated entity may be described as

A set of owners other than the parent company owners with no legal claim on the subsidiary’s net assets

Consolidated NI attributable to the parent company owners may be computed as consolidated NI less net income attributable to the

noncontrolling interest

When the collective acquisition-date fair values of the subsidiary’s net assets exceed the sum of the acquisition-date fair values of the controlling and non-controlling interests then the acquiring company recognizes a gain on

bargain purchase

Consolidated retained earnings equal the parent’s when the parents accounts for its Investment in Subsidiary using

the equity method

In periods subsequent to acquisition, noncontrolling interest valuation (NCI) in consolidated financial reports is based on

acquisition-date fair value adj. for the NCI’s share of post-acquisition adjusted subsidiary net income less dividiends

Noncontrolling interest amounts appear where in consolidated financial statements

consolidated owners’ equity section, consolidated income statement as an allocation of consolidated net income

Because it is an intra-entity transfer, the portion of a subsidiary dividend payable to its parent company is

eliminated in consolidation

Items in the computation of net income attributable to noncontrolling interest

subsidiary’s net income, noncontrolling interest‘s ownership percentage in the subsidiary, excess acquisition-date fair value amortizations

When the parent applies the equity method, which of the following balances are the same across the parent company accounts and consolidated balances?

Retained earnings

A noncontrolling interest in a consolidated entity may be described as

An ownership interest in a subsidiary held by owners other than the parent company.

The relevant criterion for the requirement to prepare consolidated financial statements is whether one company

controls the decision-making process of another company

A parent company owns 80% of the voting stock of a subsidiary. What percentage of the subsidiary's net income (after excess acquisition-date fair value amortizations) is attributable to the noncontrolling interest?

20%

For an 80% owned subsidiary accounted for under the equity method, the parent includes in the Investment in Subsidiary account balance

A deduction for 80% of subsidiary dividends declared since the acquisition.
80% of post-acquisition subsidiary earnings adjusted for excess acquisition-date fair value amortizations.

At the date of a business acquisition, the parent values any noncontrolling interest shares at

fair value

When a parent acquires a controlling, but less-than-100% interest in a subsidiary, the basic elements for establishing an acquisition-date subsidiary value include

The fair value of the noncontrolling interest.
The fair value of the controlling interest.

Consolidated net income attributable to the parent company owners may be computed as consolidated net income less net income attributable to the

noncontrolling asset

Economic unit concept

calls for a parent to consolidate 100% of controlled subsidiary’s A/L despite owning less than 100% of its voting shares

The computation of the noncontrolling interest (NCI) share of consolidated net income includes the NCI's proportional ownership 

Of the subsidiary's net income.