Unit 15

When (1) the net of the acquisition-date fair values of the identifiable assets acquired and liabilities assumed exceeds (2) the sum of the acquisition-date fair values of (a) the consideration transferred, (b) any noncontrolling interest in the acquiree, and (c) the acquirer's previously held equity interest in the acquiree, the acquirer recognizes the excess as a ___.

gain from bargain purchase

Consolidated reporting is required even when majority ownership is ___, i.e., when a subsidiary holds a majority stake in another subsidiary.

indirect

The effects of ___transactions should be eliminated from consolidated financial statements in their entirety regardless of the parent's percentage of ownership.

intraentity

Transfer of plant assets requires elimination of any gain or loss on a sale recognized on the ___ transaction.

intraentity

All the accounts related to the property or inventory transferred in the ___ transactions must be reported in the consolidated financial statements at the amounts that would have been reported if the

intraentity intraentity transactions had never occurred.

Cash dividends from a subsidiary have no effect on consolidated retained earnings but decrease the ___.

noncontrolling interest

In the assets and liabilities section of the acquisition-date balance sheet, the subsidiary's assets and liabilities are reported at 100% of their fair value even if a ___ exists.

noncontrolling interest

Goodwill from the acquisition of a subsidiary is presented separately in the

noncurrent assets section of consolidated financial statements.

A business combination is an acquisition of net assets, and the subsidiary's equity balances are ___.

not included NOTE: When you are looking at this problem and they ask you strictly for equity in parent, you should look for the % first. If it 100% you take ONLY the Parent's equity.

A bargain purchase is recognized in the consolidated financial statements as an ___ at the acquisition date. A bargain purchase occurs when the net of the acquisition-date fair values of identifiable assets acquired and liabilities assumed ___of the consideration transferred, any noncontrolling interest recognized, and any previously held equity interest in the acquiree.

ordinary gain exceeds the sum of the acquisition-date fair values

Consolidated dividends consist only of those paid to parties ___.

outside the consolidated entity NOTE: Consolidated dividends are paid to parties outside the consolidated entity by the parent and the subsidiary. Thus, they exclude the parent's proportionate share of those paid by the subsidiary and the subsidiary's proportionate share of those paid by the parent.

When one entity controls another, consolidated financial statements must be issued regardless of the percentage of ownership. Control is the direct or indirect ability to determine the direction of management and policies of the investee. This usually means one entity's direct or indirect ownership of more than 50% of the

outstanding voting interests of another entity.

Retained earnings of the consolidated entity at the acquisition date consist solely of the retained earnings of the ___.

parent NOTE: Equity amounts of the subsidiary are eliminated.

An entity consolidates a VIE when its variable interest(s) provide(s) a controlling financial interest. This entity is the ___.

primary beneficiary of the VIE

The gain or loss on extinguishment of debt from a consolidated perspective must be recognized when the debt is ___.

purchased by a combining entity

In a consolidated balance sheet, ___, between a parent and a subsidiary are eliminated in their entirety, regardless of the portion of the subsidiary's stock held by the parent.

reciprocal balances, such as receivables and payables

A combination is an acquisition of net assets. The subsidiary's equity accounts are not included. Thus, in the absence of a bargain purchase, the equity of the consolidated entity immediately after acquisition is the ___

same as the equity of the parent just prior to acquisition plus the fair value of the noncontrolling interest

If an acquisition is other than on the first business day of the year, revenues, expenses, gains, and losses of the subsidiary are included in the financial statements of the consolidated entity only from ___.

the date of the acquisition

Subsidiary shareholdings in a parent are treated as ___ of the consolidated entity.

treasury stock

Because assets and liabilities are recorded at fair value, ___ are not recognized.

valuation allowances

In whichever presentation of consolidated comprehensive income or loss is chosen, the noncontrolling interest's adjusted share of the subsidiary's comprehensive income or loss is subtracted from the consolidated amount to determine the amount attributable to the parent. Thus, three amounts are displayed on the face of the consolidated statements:

(1) a total, (2) the noncontrolling interest's share, and (3) the parent's share.

Retained earnings of the consolidated entity at a subsequent reporting date consist of

(1) acquisition-date retained earnings, (2) plus the parent's net income for the year (including its proportionate share of the subsidiary's net income), (3) minus dividends paid by the parent to parties outside the consolidated entity.

Under IFRS, a noncontrolling interest (NCI) may be measured at

(1) fair value or (2) a proportionate share of the fair value of the acquiree's identifiable net assets.

According to IFRS, at the acquisition date the acquirer may measure NCIs at

(1) fair value or (2) their proportionate share of the fair value of the acquiree's identifiable assets and liabilities.

The NCI must be adjusted for its proportionate share of

(1) the net income of the subsidiary included in consolidated net income, (2) items of consolidated other comprehensive income attributable to the subsidiary, and (3) dividends paid by the subsidiary.

The parent records a deconsolidation by recognizing a gain or loss in net income attributable to the parent. It equals the difference between

(1) the sum of (a) the fair value of consideration received, (b) the fair value of any retained investment at the date of deconsolidation, and (c) the carrying amount of any noncontrolling interest (including accumulated other comprehensive income attributable to the noncontrolling interest at the date of deconsolidation and (2) the carrying amount of the subsidiary.

Goodwill is an intangible asset reflecting the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The acquirer may recognize goodwill at the acquisition date. Goodwill equals the excess of item 1. over item 2. below:

-The sum of the acquisition-date fair values of (a) the consideration transferred, (b) any noncontrolling interest, and (c) any previously held equity interest in the acquiree -The net of the acquisition-date fair value of (a) identifiable assets acquired and (b) liabilities assumed

___ given in exchange for the acquiree is usually an obligation to transfer something to the former owners if a specified condition is met. If the acquirer received 100% of the voting interests of the acquiree, no controlling interest or previously held equity interest in the acquiree existed.

Contingent consideration

___ costs of acquisition, such as finders' fees, professional and consultants' fees, and general administrative costs, are expensed as incurred. Direct issue costs of equity, such as registration fees, legal fees, accounting fees, etc., are treated as a ___.

Direct reduction of additional paid-in capital

gross profit eliminiated formula is

Inventory remaining on purchaser's books × Seller's gross profit percentage

Business combinations must be accounted for using the ___ method. According to this method, the consideration transferred is measured at its acquisition date fair value. Contingent consideration is an obligation of the acquirer to ___ to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met

acquisition transfer additional assets or equity securities

Goodwill is tested for impairment at the reporting unit level. It is not ___.

amortized

In consolidated financial statements, intraentity transactions should be eliminated. Transfers of plant assets require elimination of any gain or loss on sale recognized. If the original useful life and depreciation method remain the same, the depreciation expense eliminated is equal to the

amount of gain on sale of equipment divided by the years of useful life remaining

Receivables from an investee over which significant influence cannot be exercised are reported on the ___.

consolidated balance sheet

An NCI is not reported for every asset and liability. The entire amount of an NCI is reported as a single component of ___.

consolidated equity

When combined statements are prepared, reciprocal transactions, profits, and losses are eliminated. Furthermore, noncontrolling interests, foreign operations, different fiscal periods, or income taxes must be treated in the same manner as in ___.

consolidated financial statements

The portion of the parent's dividends paid to outside parties reduces ___. The portion of the subsidiary's dividends paid to outside parties reduces ___.

consolidated retained earnings any noncontrolling interest

When an individual owns a controlling financial interest in several entities with related operations, (s)he can prepare combined, rather than

consolidated, financial statements.

The parent's investment in subsidiary, intraentity dividends, and the subsidiary's equity accounts, which include retained earnings, are among the eliminations in a ___. The equity (net assets) of the subsidiary not directly or indirectly attributable to the parent is reported separately in consolidated equity as the ___. Consolidated retained earnings equals the accumulated earnings of the consolidated group not distributed to the owners of, or capitalized by, the parent. Thus, it equals the ___ retained earnings. Accordingly, the subsidiary's cash dividend reduces retained earnings reported in the subsidiary-only statements and the noncontrolling interest reported in the consolidated statements. But it does not affect ___.

consolidation noncontrolling interest parent's consolidated retained earnings

When a parent entity no longer has a controlling financial interest in a subsidiary, it must ___

deconsolidate.

Combined statements are prepared in the same way as consolidated statements. When they are prepared for related entities, e.g., commonly controlled entities, intraentity transactions and gains or losses are ___.

eliminated

In essence, a variable interest entity (VIE) is any legal structure (including, but not limited to, those previously described as special-purpose entities) with insufficient equity investment or whose equity investors lack one of the essential characteristics of ___. When an entity becomes involved with a VIE, it must determine whether it is the primary beneficiary and therefore must ___ the VIE. A primary beneficiary holds a variable interest(s) that will ___

financial control consolidate absorb a majority of the VIE's expected losses or receive a majority of its expected residual returns (or both).