[jeff]

I’ve had a few requests for April/May Study Groups…March will be here before you know it.

In order to take an early April exam, you should begin studying…now. 🙂

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

Awww. Thanks teetee!

[Anonymous]

CPAMommyof3, I wish I could help you on investments.. That's also hard for me to fully get.. If anyone has a good way of explaining the different methods please post. You always help so fist pump in the air to you :0)

Btw- I did 30 Mcq on Beckers F1-F5 and scored 73% I'm so happy with that score! I had been scoring in the lows 60's before. Yay to me doing better. LOL

[Anonymous]

I just spent 10 minutes googling Consolidations, Business combinations, etc. The SIM in the WTB was ridiculous and I had no idea how to answer the quesitions. Does anyone on here understand and can explain the basics for consolidations? Congrats AleFLCPA! I love it when I see that 70+ score. On the flip side I just scored 46% on consolidations and my score was really even lower than that because I went back to look at the textbook and changed my answers on a few just so I could see their explanation/calcuation. Boooo to Consolidations!

[Anonymous]

Mommyof3, I found this in one of the forums here and maybe it can help us…..

1. When you (company) owns 0-20% of another company

-You DON'T have significant influence

-How would this investment be accounted for? Cost Method (record investment, adjust to FV, record dividend INCOME)

2. When you (company) owns 21-50% of another company

-You HAVE significant influence

-How would this investment be accounted for? Equity Method (record investment, add your share of net income to the investment account, subtract your share of dividends, adjust to FV (bottom of F3-16 has a chart of FV adjustment))

3. When you (company) owns 51% or more of another company

-You CONTROL it (since you hold majority of shares)

-Since you CONTROL it, you consolidate their financial statements into yours. How would you do this? By the Acquisition Method (this is when you use the CAR-IN-BIG entry; this entry is right after you record the purchase of the investment)

of course there are some rules/exceptions that come with each method (cost/equity/acquisition), but for the sake of not writing a novel I'm going to leave that stuff out.

Whenever I see a problem that might be associated with this I always ask myself “what percentage of shares does the company own?” and “does it say anywhere in the facts that the company HAS significant influence?” Here are the possible answers

Company owns less than 20% AND doesn't have significant influence= use Cost method

Company owns less than 20% BUT has significant influence= use Equity method

Company owns between 20-50% (significant influence doesn't matter)=Equity method

Company owns 51%+=Consolidate using Acquisition method (CAR-IN-BIG entry etc.)

Totally copied this from someone who posted…. Don't sue me!!!!

[Anonymous]

@AleFL, that's very helpful.

Can someone supplement them with corresponding JEs, if it's not too much to ask. LOL

[Anonymous]

Still copying…. NO JEs found yet. Those would be super helpful

1) PARENT makes a regular investment JE (DR Investment Asset, CR Cash (or C/S or APIC if they issued stock instead of paying cash). The parent now has an investment in the sub recorded as an asset on the BS.

2) Next thing to keep in mind is you're now going to MERGE the sub INTO the parent. There are no separate F/S anymore! Think of the sub as a segment now – of course they could print our their own B/S, but it's not just “theirs”. It's a part of the whole. I sometimes catch myself wondering parent's F/S versus sub's F/S. It's easier if you force yourself to remember they're the SAME THING.

3) The CAR entries will 100% eliminate the equity (C/S, APIC, RE) of the sub. They don't have their own equity anymore, they are controlled by the parent. The parent owns the equity, so the sub doesn't have it anymore! Reverse it from the sub (all debits to reverse). I just remember that CAR items are debits.

4) IN: Remember how in #1 you increased the asset/investment on parent side? Now you're reversing it, because you're consolidating, and it doesn't need to be an “investment” on the B/S, because you OWN the thing, and all their stuff is yours! I think of it this way – it's not just a little “investment” anymore, you own them, so all their stuff will end up on your financials. A credit will reverse the investment you debited in step 1. NCI is a bit harder – it's the % of ownership that ISN'T yours (if applicable). I had to memorize the NCI formulas for GAAP and IFRS, and I remember it's an EQUITY item on the parent B/S (equity item = credit). IN items are credits (it's like a credit sandwich between the CAR and BIG debits).

5) BIG: You probably paid more than the net assets of the company are worth. All you're doing for the BIG entries is identifying why the heck you paid more for this company than they're worth on paper. Identify the differences! B/S Adjustments are basically when an asset is worth more than it's fair value – record the difference. For example, say they have a piece of equipment shown at 10K on the sub books, but it's fair value is 100K – record the 90K difference. Same with intangibles – maybe they have a patent only capitalized for registration costs at 5K, but it's worth 500K – record the 495K difference. Anything that's left is not specifically identifiable, so you assign it to goodwill. Also, I always remember that the G of BIG can be goodwill, OR gain. Goodwill when you paid MORE than the company's net assets were worth, and Gain when you paid LESS than the company's net assets were worth. Goodwill is a debit, Gain is a credit. I think of the G as as the plug! On a side note, if you buy the company for EXACTLY the fair value of ALL the sub's net assets, I suppose there conceivably would be no BIG entries – although that would probably never happen on the exam.

Totally copied this from someone who posted…. Don't sue me!!!!

[Anonymous]

Thanks AleFLCPA! I have the Becker Outline Notes. The CAR-IN-BIG JE is:

DR Common Stock-Subsidiary

DR APIC-subsidiary

DR Retained Earnings-Subsidiary

CR Investment in subsidiary

CR Noncontrolling interest

DR Balance sheet adjusted to fair value

DR Identifiable intangible asset fair value

DR Goodwill

[Anonymous]

Found some helpful JEs. More copying…..

Do the journal entries for both entities ie

Parent selling…

Interco Ar 100000

Interco Sales 100000

Interco Cogs 60000

Inventory (The profit that needs to be eliminated!) 60000

Sales-cogs=profit (40000 profit in this case)

Subidiary Buying

Inventory 100000 (bcuz sold from parent at that price)

Interco AP 100000

Lets say 20000 is left in ending inventory

Everything interco needs to be eliminated!

Interco Sales 100000

Interco Cogs 60000

Cogs (hard part)

INV (hard part)

well we know it has to be 40000 so how do we divide it up?

Use

Beg Inv+Purchase-Ending Inventory= COGS

The trick is to use the person buying it!

So the sub purchased 100000, had 0 in beg inv, and had 20000 in ending inv)

0+100000-20000=80000

Fun part EI and COGS remember we need that for our journal entry

so use purchases of 100000 and say that 20000 is 20% of 100000 so only 40000*20%=8000

and finally cogs = 80000/100000 =80%

80% of 40000 is 32000

what do you know 32000+8000= the 40000 we need!!!

Therefore…

Interco Sales 100000

Interco Cogs 60000

Cogs (hard part)

INV (hard part)

Interco Sales 100000

Interco Cogs 60000

Cogs 32000

INV 8000

oh and get rid of any interco AR and interco AP if it remains thats simple (Credit and Debit respectively)

Totally copied this from someone who posted…. Don't sue me!!!!

[Anonymous]

I'm going to print all of that out at work tomorrow so I can really study it. Thank you so much!!!

[Anonymous]

All these posts make up for my lack of posts during the last year I was lurking this site (laughing while I type) . LOL

[Anonymous]

I hope you guys are following my thread for Bonds too. Oh well, I might as well put the link here on our study group thread.

https://www.another71.com/cpa-exam-forum/topic/far-bonds-bonds-bonds-and-bonds#post-416000

I will be working on my Investments/Business Consolidations and see what I am going to re-learn from my Wiley textbook tomorrow.

[teeteenounouche]

CPAMommyof3, heading home now…I did not get through 100 MCQs…only about 30 🙁 and I didn't write as much as usual. I just need to keep at it so that I speed myself up…

Florida:
AUD: 73, 81! Thank you Lord!
BEC: 73, 77! Thank you Lord! and WTB
REG: 71, 82! Thank you Lord! and A71
FAR: 72, 78! Thank you God and my Mommy in Heaven!

CPA Excel, Ninja Notes & Audio, Wiley Test Bank, CPAreviewforfree

[Wanna_B_TXCPA2014]

Screw govt accounting. I swear! I spent 4 hrs over the last two days reading and taking notes, listening to Ninja audio, and reading this thread to get better and I get an effing 50 and 65 on my two 20 question MCQ quizzes. Learning this crap is way beyond pointless. Instead of pushing through I should have just went to bed, but stayed up to miss passing the 2nd time by two effing questions. Anybody else want to help me draft a complaint letter to AICPA?

[How many letters do you need]

Consolidations went much easier for me than I expected! Got through the first 30 questions or so in the Wiley book and ended up with a 72%. The acquiring part makes complete sense to me (convert everything to Fair Value, follow formula for goodwill), the statements after acquisition are pretty sound. Not sure about the rest of the weird crap in there and have no idea on the JEs (sorry mom) but I'm honestly relieved to have the foundation down. I guess some topics just stick…wish I knew why so I could replicate it 🙂

MBA,CMA,CPA, CFF?, ABV?

[Anonymous]

@wanna_B–I know how you feel I was scoring in the 50s when I took a took 20 question quizzes too so I took a break from government, studied something else that came a little more naturally to me, then I read through my notes again and took a quiz with all the government quesitons in one set. I started out getting things incorrect but by the middle and end of the set I was doing good because it was question after question on the same topic. I would up getting a 79 for the entire set of quesitons. You may want to try that. Take a break from it and then go back. It could just be that you are really frustrated right now. I will definitely help draft that letter!

@Howmanyletters–I'm going to follow the same method I did with government. Taking a break from consolidations. I'm going to go over my notes, listen to the Ninja Audio, watch the Ninja Blitz, and study notes AleFLAPC posted, then I'm going to tackle consolidations again. Congrats on getting it! I wish you could telepathically send that knowledge over to me, but I guess I'm going to have to learn it myself. Boooo!

[Author]

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