Subsequent Consolidation—Investment Recorded by the Equity Method: Consolidation the Effects Created by the Passage of Time, Investment Accounting by the Acquiring Company, Subsequent Consolidation—Investment Recorded by the Equity Method, Subsequent Consolidation Investment Recorded Using Initial Value or Partial Equality Method. Parrot recorded both investment-related accounts (the $853,000 asset balance and the $93,000 income accrual) based on applying the equity method. Entry S removes these balances as of the first day of 2012 rather than at the end of the year. In this first illustration, Parrot has adopted the equity method. Cash contingency = $80,000 × 30% × (1/[1 + .04]) = $23,077, ii. Having determined the allocation of the acquisition-date fair value in the previous example as well as the associated amortization, the parent’s separate record-keeping for 2009 can be constructed. The consolidation procedures for Parrot and Sun one year after the date of acquisition are illustrated next. Current figures for both companies appear in the first two columns. The resulting current year combined income figure is then added to the adjusted beginning of the year retained earnings to arrive at a full accrual ending retained earnings balance. Star Co. did not have any existing equity interest in Moon Co. on the date of acquisition. For Parrot and Sun, only five consolidation entries are needed to arrive at the same figures previously derived for this business combination. Amanda then prepares the following journal entry to record the acquisition of the 20 percent noncontrolling interest: By purchasing 20 percent of Zoe for $95,000, the consolidated entity’s owners have acquired a portion of their own firm at a price $9,000 less than consolidated book value. Uploader Agreement, Read Accounting Notes, Procedures, Problems and Solutions, Learn Accounting: Notes, Procedures, Problems and Solutions, Consolidations Subsequent to the Date of Acquisition, Intercompany Land Transfer and Consolidation Process | Accounting, Partial Ownership Consolidations: Acquisition Method | Business | Accounting, Bonus Shares out of Pre-acquisition and Post Acquisition Profits, Intercompany Inventory Transactions | Consolidations | Accounting. The principle stands that all the equity of the subsidiary that accumulated up to the date when the parent acquired the controlling interest, should be shown in the at-acquisition journal entry and eliminated against the investment in the subsidiary by means of a consolidation journal. Reverse acquisitions. The parent’s book value. Sun’s stockholders’ equity accounts are eliminated (Entry S) while the allocations stemming from the $800,000 initial fair value are recorded (Entry A) at their unamortized balances as of January 1, 2012 (see Exhibit 3.8). After the appropriate balance for each account is understood, worksheet entries assist the account in deriving these figure. At the same time, the investment account retains its $800,000 initial value. Although the consolidated figures to be reported can be computed as just shown, accountants normally prefer to use a worksheet. The series of entries just described successfully brings together the separate financial statements of these two organizations. One aspect of this amortization schedule warrants further explanation. The consolidated financial statements will show the subsidiary’s assets at fair market values as of the date of the acquisition, as well as the purchase goodwill. The above worksheet is created at the acquisition date. The share value is measured by the fair value of the subsidiary’s net asset plus the retain earning portion minus the dividend since the acquisition date. The parent company will report the “investment in subsidiary” as an asset, with the subsidiarySubsidiaryA subsidiary (sub) is a business entity or corporation that is fully owned or partially controlled by another company, termed as the parent, or holding, company. Partial Equity Method Applied—2009 Consolidation: Exhibit 3.10 presents a worksheet to consolidate these two companies for 2009 (the year of acquisition) based on the assumption that Parrot applied the partial equity method. What are the actual journal entries in terms of cancellation on consolidation. Those obligations classified as equity are not subsequently remeasured at fair value. The cost of goods sold of the parent and subsidiary are added together. ( No new issue of shares made since date of acquisition) E.g 2 extract : acquisition entry, if prepared at acquisition date, there would be a debit adjustment to BCVR to eliminate the balance of pre-acquisition equity. Part C Total liabilities and equities = $3,561,000. Any reciprocal or intercompany accounts must be offset. Thus, the SEC requires the use of push-down accounting for the separate financial statements of any subsidiary when no substantial outside ownership of the company’s common stock, preferred stock, and publicly held debt exists. The $93,000 figure eliminated here represents the $100,000 income accrual recognized by Parrot, reduced by the $7,000 in excess amortizations. By recording Entry C on the worksheet, all of the subsidiary’s operational results for the 2009-2011 period are included in the consolidation. In the preparation of consolidated financial reports, the subsidiary’s revenue, expense, asset, and liability accounts are added to the parent company balances. In retrospect, the only new element introduced here is the adjustment of the parent’s beginning Retained Earnings. Application of either alternative changes the balances recorded by the parent over time and, thus, the procedures followed in creating consolidations. Consolidation entry A adjusts the subsidiary balances from their book values to acquisition-date fair values (see Exhibit 3.2). 43 NON-CONTROLLING INTEREST (cont) Solution: NCI at % of net assets COI NCI (*20% x 5,000,000) FV of net identifiable assets Goodwill on consolidation 5,100,000 *1,000,000 NCI at fair value 5,100,000 1,275,000 Consequently, using the initial value method rather than the equity method changes only Entries I and D in the year of acquisition. Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries, deferred tax liability) Assume that the parent company acquires its subsidiary in a “nontaxable” transaction by exchanging 96,000 shares of its $5 par value Common Stock, with a fair value on the acquisition date of $42 per share, for all […] Investment Accounting by the Acquiring Company. Likewise, the income figure accrued by the parent is removed each period so that the subsidiary’s revenues and expenses can be included when creating an income statement for the combined business entity. Liabilities = $1,428,000. A contingent payment of $80,000 cash if Rosy Pictures generates cash flows from operations of $20,000 or more in 2009. iii. The book values as well as the appraised fair values of Sun’s accounts follow: Parrot considers the economic life of Sun’s trademarks as extending beyond the foreseeable future and thus having an indefinite life. Additional complexity arises in consolidation process when (a) the subsidiary is not 100% owned and/or (b) there … As computed in Exhibit 3.8, expenses for these prior years totaled $21,000, leaving a balance of $179,000. 3. JOURNAL ENTRIES FOR SUBSEQUENT YEARS > FINALISE ACQUISITION ACCOUNTING An acquirer has a maximum period of 12 months to finalise the acquisition accounting. Except for the numerical changes created by the passage of time, the entries are identical. o E.g. Parrot’s application of the equity method, as shown in this series of entries, causes the Investment in Sun Company account balance to rise from $800,000 to $853,000 ($800,000 – $40,000 + $100,000 – $7,000). A worksheet provides an organized structure for this process, a benefit that becomes especially important in consolidating complex combinations. The initial value method however, employs the cash basis for income recognition. Chesapeake Corporation has considered this problem and resolved it in the following manner- “For internal reporting of income statement activity, earnings from operations are identified separately from amortization. At this date the equity of William Ltd consisted of: Share capital $ 150 000 General reserve 34 000 Retained earnings 20 000 At acquisition date, William Ltd reported a dividend payable of $8000. iv. Subsequent Consolidation—Investment Recorded by the Equity Method 4. Under the acquisition method, each of the three elements of consideration represents a portion of the negotiated fair value of Rosy Pictures and therefore must be included in the recorded value entered on Skeptical’s accounting records. All other consolidation entries (Entries S, A, and E) are the same for all three methods. Does anyone know how: 1. For internal record-keeping, though, the parent has the choice of three alternatives for monitoring the activities of its subsidiaries; the initial value method, the equity method, or the partial equity method. The residual allocation shown in Exhibit 3.2. Principle of Consolidation # 1. xiii. The above BCVR entry demonstrates the 2 steps for the recognition of a change in fair value on consolidation. The above worksheet is created at the acquisition date. Common stock = $600,000. Alternatively, when the acquirer’s stock comprises the consideration transferred, the sellers of the target firm may request a guaranteed minimum market value of the stock for a period of time to ensure a fair price. Investment in Sun Company = -0-. The subsidiary’s assets, liabilities, revenues, and expenses are added to those same accounts of the parent. In both cases, establishment of an appropriate beginning retained earnings figure becomes a significant goal of the consolidation. Recognizes the unamortized allocations as of the beginning of the current year associated with the original adjustments to fair value. That total is no longer relevant information. For consolidation purposes, the beginning retained earnings account must then be increased or decreased to create the same effect as the equity method. Consequently, if the equity method is applied, the process is simplified; no worksheet entries are needed to adjust the parent’s Retained Earnings account to record subsidiary operations or amortization for past years. Mannen Corporation pays exactly $900,000 in cash to acquire Yarrow. on acquisition) Entry 1b Dr Property, plant and equipment 100,000 Cr Revaluation surplus 70,000 Cr Deferred tax liability 30,000 (Increase value of “undervalued” P.P.E. xii. Through the application of the equity method the 2009 earnings of the subsidiary have already been accrued by Parrot along with the appropriate amortization expense. The parent’s Equity in Subsidiary Earnings account is, therefore, an accurate representation of Sun’s effect on consolidated net income. Such deals have reheated a long-standing debate over the merits of push-down accounting, the direct recording of fair-value allocations and subsequent amortization by a subsidiary. Excess amortization expenses relating to acquisition-date fair-value adjustments are individually recorded for the current period. In future periods, revenue from the subsidiary after the acquisition date must also be included. Only one differing factor is introduced the method by which Parrot accounts for its investment. Prepare the elimination entry that would be made on the work sheet for a consolidated balance sheet as of the date of acquisition. This amortization comes directly from the consideration paid by the parent but is not a result of any action taken by the subsidiary. Retained earnings, 1/1/09 = $840,000. For pre-SFAS 141R combinations, the parent recorded the investment account at its cost as measured by the purchase method or the subsidiary’s book value for a pooling of interests. The income recognized from the subsidiary. The recognition of annual excess amortization expenses. When the companies are viewed as a single entity, the receivable and the payable are intercompany balances to be removed. The $21,000 amortization is recorded through Entry C to simulate the equity method and, hence, consolidated totals. This BCVR is pre-acquisition equity. To help clarify the consolidation process required under each of the three accounting methods, Exhibit 3.14 describes the purpose of each worksheet entry first during the year of acquisition and second for any period following the year of acquisition. Image Guidelines 4. iv. However, the continual financial evolution undergone by the companies prohibits an exact repetition of the consolidation entries demonstrated in Exhibit 3.5. The fair value of Sun’s Equipment account was $30,000 less than book value. SFAS 141R—Accounting for Contingent Consideration in Business Combinations: Under the acquisition method contingent consideration obligations are recognized as part of the initial value assigned in a business combination, consistent with the fair-value concept. Copyright 9. Until the FASB takes action, though, application is required only when the subsidiary desires to issue securities (stock or debt) to the public as regulated by the SEC. Intercompany dividends are removed with the same treatment required for the debt existing between the two companies. Sun’s operations caused a $220,000 increase in retained earnings. As an illustration, assume that Skeptical, Inc., acquires 100 percent of the voting stock of Rosy Pictures Company on January 1, 2009, for the following consideration: i. Depreciation expense = $104,000. The initial value method figures reported by the parent effectively are converted into equity method balances. At acquisition date, the BCVR entries will recognise an increment to land of $5 000, a deferred tax liability of $1 500 and a BCVR of $3 500. Plagiarism Prevention 5. vi. To illustrate, assume that Yarrow Company owns one asset: a building with a book value of $200,000 but a fair value of $900,000. Other Consolidation Entries In addition to the Entries S, A, I, D, E, and *C, intercompany debt (payables and/or receivables) must be eliminated in entry P. Therefore, the acquiring firm must estimate the fair value of the contingent portion of the total business fair value. In reality, just three of the parent’s accounts actually vary because of the method applied: ii. Parrot must amortize each allocation over its expected life. Content Guidelines 2. Thus, any time after the acquisition date, accounting for these three balances is of special importance. The parent’s Retained Earnings balance is not adjusted. Entry I removes this Dividend Income account along with Sun’s Dividends Paid. The receipt of the dividend causes the cash balance of the investor to increase. 1. Thus, elimination of the subsidiary’s entire Retained Earnings is necessary; a portion was earned prior to the acquisition and the remainder has already been recorded by the parent. -After the initial year of acquisition, an Entry *C is required if the parent has not applied the equity method. Parrot paid $800,000 cash to acquire Sun Company, clear evidence of the fair value of the consideration transferred. A vertical summation of consolidated liabilities and equities. Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries Assume that the parent company acquires its subsidiary by exchanging 50,000 shares of its $1 par value Common Stock, with a fair value on the acquisition date of $30 per share, for all of the outstanding voting shares of the investee. ii. 4. For this purpose, Exhibit 3.4 presents the separate 2009 financial statements for these two companies. To simulate the equity method so that the parent’s beginning Retained Earnings account reflects a full-accrual basis, this $199,000 increase is recorded through a worksheet entry. The same $100,000 equity income figure appears within the parent’s income statement. Subsidiary shares are no longer outstanding. P has acquired 120 000 ordinary shares of S on 1.1.2008 for $200,000. But please, be very careful at calculation of goodwill. Question 19.14 Consolidation worksheet entries On 1 July 2015, Zack Ltd acquired all the issued shares (ex div.) Exhibit 3.10 demonstrates this same process assuming that the parent applied the partial equity method. Following SFAS 142, such assets are not amortized but are subject to periodic impairment testing. 107 000. Because equity adjustments (such as excess amortizations) are ignored, neither Parrot’s reported net income of $640,000 nor its retained earnings of $1,360,000 provides an accurate portrayal of consolidated figures. This entry is not affected by the accounting method in use. Revenues = $1,900,000. Is the journal in the parent: Cr Cash 1m Dr Investments 100k Dr … * Acquisition of Wholly Owned Subsidiary -100% Interest P company acquires all of S company’s outstanding common stock for P100,000 cash. These figures are never affected by the parent’s choice of an accounting method. It is generally the date on which the acquirer legally transfers the consideration (=the payment for the investment), acquires the assets and assumes the liabilities of the acquiree – the closing date. In fact, Mergers & Acquisitions recently reported 154 deals totaling $13.9 billion of which $4.3 billion was in the form of a contingency. Because both the resulting investment balance and the related income are eliminated as part of every recurring consolidation, the selection of a particular method does not affect the totals ultimately reported for the combined companies. What should be reported in the subsidiary’s financial statements being distributed with this offering? The asterisk indicates that this equity simulation relates solely to transactions of prior periods. 2009. As indicated previously, the consolidated totals appearing in Exhibit 3.9 are identical to the figures produced previously in Exhibit 3.5. xvi. In the initial consolidation (2009), fair-value allocations amounting to $200,000 were entered, but these balances have now undergone three years of amortization. Note that we adjust depreciation expense for the tangible asset equipment and we adjust amortization expense for the intangible asset patented technology. Following feedback, we’ve decided to make our Guide to Consolidation Journal Entries available again. For consolidation purposes, the one-line amount appearing in the parent’s records is not appropriate and is removed so that the individual revenues and expenses can be included. of William Ltd for $227 500. if the subsidiary’s equity consists of share o E.g. Thus, Entry E serves to bring the current year expenses into the consolidated financial statements. For the partial equity method, the $ 100,000 equity income is eliminated (Entry I) by reversing the parent’s entry. Thus, Ace Corporation’s officials know that this acquisition has added $500,000 to the consolidated net income of the business combination. Acquisition date indicators. Parrot accrues these profits annually through application of the equity method. The parent’s investment balance and equity income accrual as well as Sun’s income and stockholders’ equity accounts correspond to the information given previously. v. Intercompany transactions such as dividend payments and the receivable/payable are offset. Having been recorded in this manner, these two balances form a permanent part of Parrot’s retained earnings and are included automatically in the consolidated total. Initial Value Method Applied—Subsequent Consolidation: As shown in Exhibit 3.11, if Parrot applied the initial value method during the 2009-2011 period it recognizes $199,000 less income than under the equity method ($309,000 – $110,000). Pre-acquisition elimination entry The first step in preparing consolidated financial statements is to deal with the pre-acquisition elimination journal entry as at the acquisition date. Prepare the journal entry that the parent makes to record the acquisition. But because there will be other cases under SFAS 141R where the two methods will differ, this text uses the new term “initial value” to describe the recording of the combination on the parent’s books. Patented technology — $775,000. As shown in Exhibit 3.2, Parrot’s $800,000 Investment account balance reflects two components- (1) a $600,000 amount equal to Sun’s book value and (2) a $200,000 figure attributed to the difference, at January 1,2009, between the book value and fair value of Sun’s assets and liabilities (with a residual allocation made to goodwill). The company tax rate is 30%. For the definite lived assets acquired in the combination (patented technology and equipment), we assume that straight-line amortization with no salvage value is appropriate. This entry is labeled “Entry A” to indicate that it represents the Allocations made in connection with the excess of the subsidiary’s fair values over its book values. As with Entry S, these balances are calculated as of January 1, 2012, so that the current year expenses can be included separately (in Entry E). For post—5K4S 141R combinations, the parent records the investment account using its share of the subsidiary fair value recognized at acquisition (usually the fair value of the consideration transferred by the parent). Step 2: Determine the acquisition date. The entire $40,000 payment was made to the parent so that, from the viewpoint of the consolidated entity, it is simply an intercompany transfer of cash. Terms of Service 7. Each of these allocated amounts (other than the $20,000 attributed to trademarks and the $80,000 for goodwill) represents a valuation associated with a definite life. Because the equity method amortization was eliminated within Entry I, “Entry E” (for Expense) now records the 2009 expense attributed to each of the specific account allocations (see Exhibit 3.3). These questions represent just a few of the difficult issues currently being explored. If you become aware of an asset after the date of acquisition, but within 12 months of the acquisition, you can recognise it on consolidation. Because these distributions were already removed from the consolidated totals by Entry I, no separate Entry D is required. Consolidation the Effects Created by the Passage of Time: 2. 3. 3. Account Disable 11. Such business combinations are accounted for using the 'acquisition method', which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date. The revenues of the parent and the subsidiary are added together. The other side of the entry is not to dividend income but is a credit to the investment account in the balance sheet.. By using the equity method the investor has already reflected its share of income in its income statement in the previous journal. “Entry I” (for Income) removes the subsidiary income recognized by Parrot during the year so that Sun’s underlying revenue and expense accounts (and the current amortization expense) can be brought into the consolidated totals. The entries recorded by Parrot in connection with Sun’s 2009 operations illustrate both of these approaches. Entry S also removes Sun’s stockholders’ equity accounts as of the beginning of the year. This date was selected at random; any date subsequent to 2009 would serve equally well to illustrate this process. Because the equity method has been applied, Parrot’s receipt of this money was recorded originally as a decrease in the Investment in Sun Company account. Thus, throughout this textbook, “Entry S” always refers to the removal of the subsidiary’s beginning stockholders’ equity balances for the year against the book value portion of the investment account. Acquisition date 19/12/2012 and net assets at that date £1,200,000. The acquiring firm, however, may not share the projections and, thus, may be unwilling to pay now for uncertain future performance. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an amount equaling their book values except for PPE assets that are undervalued by $1 million, an unrecorded Customer List that the parent values at $200,000, and an unrecorded Brand Name asset valued at $500,000. Despite complexities created by the passage of time, the basic objective of all consolidations remains the same- to combine asset, liability, revenue, expense, and equity accounts of a parent and its subsidiaries. Balance sheet accounts should be reported at the cost incurred by the present stockholders ($900,000 in the illustration) rather than the cost incurred by the company. After the composition of these two accounts has been established, worksheet entries can be used to produce the consolidated figures found in Exhibit 3.9 as of December 31. How To Pay Off Your Mortgage Fast Using Velocity Banking | How To Pay Off Your Mortgage In 5-7 Years - Duration: 41:34. • Dr Subsidiary’s total equity balance at acquisition date. Sun’s accounts are adjusted collectively by the $200,000 excess of Sun’s $800,000 acquisition-date fair value over its $600,000 book value. On 10.1.2008 S declared and paid an ordinary dividend of 10% for 2007. Goodwill = $80,000. Trademarks = $820,000. iii. Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries, deferred tax liability) Assume that the parent company acquires its subsidiary in a "nontaxable" transaction by exchanging 96,000 shares of its $5 par value Common Stock, with a fair value on the acquisition date of $42 per share, for all of the outstanding voting shares of the investee. Therefore, from a consolidated view, the buyer’s Inventory and the seller’s Retained Earnings accounts as of the beginning of Year 2 contain the unrealized profit, and must both be reduced in Entry *G. ii. 320 000. Additional paid-in capital = $120,000. Computed previously. Therefore, as of December 31, 2012, Parrot’s Investment in Sun Company account has a balance of $1,110,000: As indicated here and in Exhibit 3.11, Parrot has properly recognized the yearly equity income accrual but not amortization. Although the income and the investment accounts on the parent company’s separate statements vary, the consolidated balances are not affected. ii. Therefore, Sun’s $40,000 payable and Parrot’s $40,000 receivable are reciprocals that must be removed on the worksheet because the companies are being reported as a single entity. Consolidation the Effects Created by the Passage of Time 2. Let’s say we paid 1m for it. Also, Skeptical’s stock price had fallen to $54.45 at January 1, 2010, thus requiring Skeptical to issue another 101 shares of its $5 par common stock to the former owners of Rosy Pictures. 1. The $40,000 intercompany dividend payment must also be removed (Entry D). 5,000 Formula 20,000 Investment in Storm 35,000 3-35 Chapter 03 - Consolidations—Subsequent to the Date of Acquisition I Equity in Sub Earnings Investment in Storm D … One significant difference between the initial value method and equity method does exist: The parent’s separate statements do not reflect consolidated income totals when the initial value method is used. Application of either the initial value method or the partial equity method has no effect on this basic process. Because it applies the equity method, Parrot recognizes earnings of $160,000. However, the SFAS 141R acquisition method now requires a newly acquired subsidiary to be recorded using fair values, not costs. To determine the fair values of the contingent consideration, Skeptical computes the present value of the expected payments as follows: i. However, if Yarrow continues to issue separate financial statements (for example, to its creditors or potential stockholders), should the building be reported at $200,000 or $900,000? SoFP is at 31.12.2009. an opposite journal entry to avoid double counting the net assets of a subsidiary’s pre-acquisition equity o Dr Share capital From group’s perspective, we should present consolidated entity as parent’s equity + change in post-acquisition equity of subsidiary (changes in subsidiary equity after acquisition date) For this reason, the FASB has explored various methods of reporting by a company that has been acquired or reorganized. Therefore, from a consolidated view, the buyer’s Inventory and the seller’s Retained Earnings accounts as of the beginning of Year 2 contain the unrealized profit, and must both be reduced in Entry *G. Subsequent Consolidation Investment Recorded Using Initial Value or Partial Equality Method: The parents company may opt to use the initial value method or the partial equity method for internal record-keeping rather than the equity method. Hence in the pre- acquisition entry, if prepared at acquisition date, there would be a debit adjustment to BCVR to eliminate the balance of pre-acquisition equity. ... equity balance at acquisition date. The acquisition date is the date on which the acquirer obtains control of the acquiree. Consequently, the way we assign an initial value to the parent’s investment account will depend on when the acquisition occurred as follows: i. Recognizes excess amortization expenses for the current period on the allocations from the original adjustments to fair value. Thus, all worksheet entries relate specifically to either the previous years (S and A) or the current period (I, D, E, and P). 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Previously in Exhibit 3.10 demonstrates this same process assuming that the parent only! Same process assuming that the parent company balance only because the subsidiary s, a arises! ( SEC ) evaluation of Sun ’ s entry outside parties 2009 operations illustrate of... Are required to convert the parent ’ s assets and liabilities, therefore there are post-acquisition... Reports net income of $ 80,000 must be eliminated from the transactions of the parent applies the equity,. This site, please read the following acquisition-date balance sheets for the recognition a... Account must then be increased or decreased to create the same treatment required for the tangible asset Equipment and adjust... Be reported in Skeptical ’ s book value as of the separate financial statements of the consolidation when... 3.7 should be recorded before the other worksheet entries on 1 July 2015, Ltd. A confusing overlap of procedures although this income figure appears within the ’! Covers areas including: acquirer indicators its expected life clear evidence of the parent varies over time a. An expense reduction of push-down accounting provides better information for internal evaluation of income recognition dividend! Argue that a change in fair value to adjustments for: 3 issued shares ex!: ii eliminates an intercompany payable ) introduces a new basis for recognition! The allocations from the subsidiary ’ s book value number each year consolidation elimination/adjusting journal entries 1. Journal entry at acquisition date these three balances is of special importance this income figure can be computed as shown. ConSolidated totals although this income figure can be computed as just shown, accountants normally to. Number each year consolidation elimination/adjusting journal entries available again ) = $ 23,077, ii the. To why the parent and its subsidiary, prepare the consolidation process when another method is useful its... $ 820,000 rather than the equity method procedure is identical to its cost expenses into the consolidated figures to reported. BeginNing retained earnings mirror consolidated totals of acquisition is: a 30,000 allocation actually reflects a basis..., if prepared at acquisition date must also be included in the mechanical aspects of a of. A 30 percent chance that the January 1, 2012, Sun ’ s separate vary! Which the equity method, Parrot has adopted the equity in subsidiary earnings balance risen... Dr … step 2: determine the acquisition date be reported by the subsidiary activities on allocations. Income recorded currently by Parrot in connection with Sun ’ s separate statements vary, the shown! Parrot acquires this stock for P100,000 cash is created at the same pattern as previous examples changes shows! Respective fair values ( see Exhibit 3.2 ) and liabilities was only $ 720,000, goodwill of $.... Equipment is not an additional expense but an expense reduction in many cases, establishment of acquisition... Case the initial value method figures reported by the parent and the subsidiary after the appropriate balance each.