[14 Times a Charm]

Explain Consolidated NI to me on a consolidated B/S under the Acquisition Method.

So far this is what I know is CORRECT:

• The Consolidated R/E is always the Parents

• (Dividends Paid = Parent’s (the Sub’s R/E is Eliminated)

• The Consolidated APIC is always the Parents

• The Consolidated C/S is always the Parents

• The Consolidated SHE is always the Parents

• On a Consolidated B/S, Intercompany Profit & Receivables/Payables are Eliminated during Consolidation & Inventory is Carried at CV.

BUT HOW DO YOU TREAT CONSOLIDATED NET INCOME under the Acquisition Method when there is a Subsidiary (Acquiree) involved that is either 30% owned by the Parent or 10% owned by the Parent?

Do you just add the Subsidiary’s NI to the Parent’s NI regardless of the percentage owned by the Parent when doing a Consolidated B/S???

[Anonymous]

I didn't think you consolidated when the % ownership is less than 50%. I thought it was Fair Value method at less than 20% and Equity Method when ownership is more than 20% and less than 50%. Am I missing something?

[14 Times a Charm]

Ok, forget the Acquisition Method part of my question. In other words, tell me if the following statement is ALWAYS TRUE:

If a Subsidiary is 100% owned by the Parent, then 100% of the NI of the Sub is used in the consolidated NI amount. If a Sub is only partially owned by the Parent, only the portion owned is used in the consolidated NI amount. For example, if a Sub has $100,000 NI & is 50% owned, $50,000 of NI is included in the consolidated NI amount.

[Anonymous]

I could be completely off base here but everything I am reading says you close the Subs books for the year before you consolidate, because they only talk about balance sheet accounts, assets and liabilities. Which means that net income doesn't come into the equation. It would have been closed out to Retained Earnings, which is removed from the consolidated statements, and the proportion of the net income that goes to the parent is added to the investment account. There are note disclosures under GAAP and IFRS to report the subs income statement items. It's very late and I'm very tired but I haven't read anything that discusses a consolidated income statement. I have been reading the Wiley 2012 book and the CPAExcel 2012 book. I hope I helped and didn't confuse the issue but I've learned a lot about consolidations in the past 30 minutes!

[Anonymous]

@14 Times a Charm you wrote:

“If a Subsidiary is 100% owned by the Parent, then 100% of the NI of the Sub is used in the consolidated NI amount. If a Sub is only partially owned by the Parent, only the portion owned is used in the consolidated NI amount. For example, if a Sub has $100,000 NI & is 50% owned, $50,000 of NI is included in the consolidated NI amount.”

First you need to understand this:

<20% of stock owned= fair value method

20-50%= equity method

>50%=consolidated financial statements

So if parent corp owned 50% of the subsidiary corp you wouldn't need to do a consolidated statement.

If parent corp owned 51% of the subsidiary corp you would have consolidated financial statements. In that case the parent would recognize net income on the consolidated financials and they would also show the “non-controlling interest” of the sub corp (49%)

Hope this answers your question…

[Whyme]

I am working on the Acquisition method as we speak and this is the rule : The consolidate income statement will include 100% of the subs revenues and expenses (after the date of acquisistion). The consolidated income statement should show, seperately, consolidated net income, net income attributable to the NCI, and net income attributable to the parent.

To calculate the NCI net income you would:

Subs income- Subs Exp= Subs Net income

Subs Net income * NCI %= Net income attributable to the noncontrolling interest (which is a seperate line item on the Inc statement)

So to summarize:

First calculate Net Income for Parent

Second Calculate NCI Net Income

Third Add the two together to get consolidate net income.

Let me know if this helps. Explaining this to you actually helped me understand it a bit better. Thanks lol.

AUD- 71, 73, 87 Done!!!!!
BEC- 75
FAR- 72, 77
REG- 77

[14 Times a Charm]

Yeah that's helpful guys. Here's how the Wiley Test Bank words the Acquistion Method:

Noncontrolling Interest

The Parent often acquires less than 100% (but more than 50%) of the Sub’s out­standing stock. Under the acquisition method, the consolidated financial statements will in­clude all of the assets, liabili­ties, revenues, & expenses of these less than wholly owned businesses. The percentage of the stock not owned by the Parent represents the noncontrolling interest’s share of the fair values of the Sub. Noncontrolling interest is disclosed as a separate line item on the balance sheet in owner’s equity. The portion of net income & comprehensive income attributed to the noncontrolling interest must be disclosed on the income statement.

The following procedures apply to cases of less than 100% business acquisition.

1. The equity accounts of the Sub are eliminated in consolidation, and a noncontrolling interest is established for the fair value of the shares of stock held by the noncontrolling interest at the date of acquisition.

2. The entire amount of intercompany reciprocal items is eliminated. For example all receivables/payables & sales/cost of sales with the subsidiary are eliminated.

3. A portion of net income & dividends of the Sub are allocated to the noncontrolling interest.

The financial statements are consolidated & combined with the parent including all of the Sub’s revenues & expenses after the date of acquisition. The noncontrolling interest’s share of the Sub’s income is presented as a deduction on the consolidated income statement.

Wiley Test Bank Again:

If the Sub is 100% owned by the Parent, then under the “full” equity method (Sub 100% owned) of accounting, the Parent's net income equals consolidated net income. “Meaning, that you add up 100% of Sub's NI to Parent's NI.”

This is all confusing when actually applying the info to a MCQ though.

[Author]

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