Advanced Accounting Chapter 3
consolidated income statements report goodwill impairment losses as
a component of operating income
by recognizing subsidiary income as it is earned, rather than when cash is received through a dividend, the equity method embraces the ___ method of accounting
accrual
when the parent applies the equity method to its investment in subsidiary account, no worksheet entries are required to adjust the parent's retained earnings because the parents has routinely recognized income from the subsidiary on a full-___ basis
accrual
which of the following best describes the income recognition basis reflected by the equity method
accrual basis
which of the following accounts of both the parent and subsidiary are combined for consolidated financial reporting
assets and liabilities, revenues and expenses
consolidation entry a adjusts the subsidiary's assets to their unamortized acquisition-date fair value as of what date
beginning of the current reporting period
consolidation entry i
brings the equity in subsidiary earnings account to a zero balance
regardless of the parent's internal accounting method choice, the initial amount typically recorded in an investment in subsidiary account is the fair value of the ____ ____ by the parent
consideration transferred
consolidation entry s removes the balances from the subsidiary's common stock and additional paid-in capital accounts to ensure that only the parent's balances for these accounts appear in ___ totals
consolidated
subsidiary dividends attributable to its parent are excluded from ___ totals because they represent an intra-entity transfer with no financial effect outside the reporting entity
consolidated
if a subsidiary company has a debt payable to its parent company, the intra-entity payable and receivable is removed as part of the ___ process
consolidation
when a parent includes equity method earnings with its own earnings, the parent's net income equals consolidated net income. as a result, the equity method is often referred to as a single-line ___
consolidation
how do the consolidation worksheets compare across Exhibit 3.5 vs. Exhibit 3.9 and Exhibit 3.10
consolidation entries s, a, and e are the same across the three exhibits and no differences in consolidation totals across the three exhibits
when the acquisition-date fair value of subsidiary long-term debt exceeds it carrying amount, in periods subsequent to the acquisition, worksheet entries are needed to ___ interest expense
decrease
under the initial value method, the parent records income when the subsidiary declares a ____
dividend
a parent company, over time, will routinely make which of the following adjustments in applying the equity method to its investment in subsidiary account
dividends from the subsidiary, excess acquisition-date fair over book value amortization, and income as it is earned and reported by the subsidiary
when the parent uses the equity method, consolidation entry d
eliminates the intra-entity subsidiary dividends attributable to the parent company
consolidation entry a, in the first year subsequent to acquisition, adjusts the subsidiary's asset and liability balances to acquisition-date ___ values
fair
as compared to acquisition-date accounting for business combinations, subsequent to an acquisition the parent company must additionally report consolidated
income, revenues, and expenses
when the parent applies the equity method on its internal records, what accounts balances are removed on the consolidated worksheet
investment in subsidiary, equity in subsidiary earnings, and the parent's share of subsidiary dividends declared
when a particular asset acquired in a business combination has an acquisition-date fair value in excess of its acquisition-date book value, the assets carrying amount from the subsidiary's financial records
must be increased in preparing consolidated financial statements
in a post-acquisition consolidation worksheet, which rows are not summed across to derive consolidation totals
net income and retained earnings (ending balance)
what effect does the parent's selection of the equity method vs. initial value method have on consolidated financial statements
no effect
beyond recording the acquisition price, what periodic adjustments does the parent typically make to the investment account when the initial value method is employed
no periodic adjustments are typically made
as part of the consolidated statement preparation process for a parent and subsidiary, the subsidiary's asset, liability, revenue, and expense balances are added to the ____ company balances after appropriate adjustments
parent
as part of the consolidation statement preparation process for a parent and subsidiary, the subsidiary's asset, liability, revenue, and expense balances are added to the ___ company balances after appropriate adjustments
parent
when a parent company owns 100% of its subsidiary, what amounts for common stock and additional paid-in capital are included in consolidated stockholder's equity totals
parent company balances only
in consolidation entry d, the credit to the dividends declared account
reduces the subsidiary's dividends balance
when the parent applies the initial value method for its investment accounting, consolidation entry I is needed to
remove the balance in the parent's dividend income and the subsidiary's dividends declared
consolidation entry s credits and investment in subsidiary account in order to
remove the beginning of the year book value component of the investment account
when the parent uses the equity method, consolidation entry i
removes the parent's recorded equity income
neither the initial value method not the partial equity method represent full accrual accounting for the subsidiary's income. therefore, over time the parent's beginning ___ ___ becomes misstated and must be appropriately established
retained earnings
when the parent employs either the initial value or the partial equity method, establishing an appropriate beginning __ __ balance of the parent is crucial to the preparation of consolidated financial statements
retained earnings
depending on the investment accounting method chosen, which of the following accounts will vary on the parent's financial records
retained earnings, the investment account, and the income from the subsidiary
worksheet entries focus on the parent's beginning retained earnings as needed to partially adjust to the full-accrual basis. to complete the adjustment, we combine current year consolidated ___ and ___ to arrive at full-accrual ending retained earnings
revenues and expense
the label s in consolidation worksheet entry s refers to the subsidiary's ___ ___ accounts
stockholders equity
the values assigned to intangible assets with indefinite useful lives are
subject to periodic impairment testing
which of the following represent procedures required in preparing consolidated financial statements for a parent company and its subsidiary
subsidiary assets and liabilities are adjusted to reflect acquisition-date fair values net of post-acquisition amortization, intra-entity receivable and payables are eliminated, and excess acquisition-date fair over book values for limited-life subsidiary assets must be amortized over time
why does consolidation entry s remove the subsidiary's stockholders' equity accounts
subsidiary ownership accounts are not relevant, because consolidated statements are prepared for the parent company owners
Subsequent to acquisition, consolidated depreciation is based upon
the acquisition-date fair values of the subsidiary's depreciable assets
among the most prominent internal record-keeping methods for accounting for an investment in a subsidiary are
the equity method, the partial equity method, and the initial value method
consolidation entry d debits the investment in subsidiary account when
the parent employs the equity method in accounting for its investment and the subsidiary has declared a current period cash dividend
conducting goodwill impairment tests at the reporting unit level helps capture goodwill impairment losses that may otherwise be offset by an increase in goodwill in another reporting unit
true
consolidated totals include the unamortized subsidiary acquisition-date excess of fair love book value allocations
true
consolidation entry I removes the equity in subsidiary earnings which is then replaced by the inclusion of the subsidiary's individual revenue and expense accounts on the consolidated income statement
true
consolidation entry a may include an adjustment to recognize goodwill created by the business combination
true
in the presence of acquisition-date excess fair over book values for subsidiary assets, both consolidation entries a and e are needed to adjust subsidiary to their end-of the-year proper consolidated balances
true
consolidation entries s and a are part of a sequence of worksheet adjustments that bring the investment in subsidiary account to a ___ balance
zero
in conjunction with combining a subsidiary's assets and liabilities with those of the parent company, the investment in subsidiary account is brought to a ___ balance as part of the consolidation process
zero
in conjunction with combining a subsidiary's revenues and expenses with those of the parent company, the income from subsidiary account accrued by a parent is brought to a _____ balance as part of the consolidation process
zero
regardless of whether the parent accounts for its subsidiary investment using the initial value of the equity method, consolidation worksheet entries bring the investment account to a ___ balance
zero
