Advanced Financial Reporting: Consolidation Subsequent to

School: University of California, Los Angeles - Course: AC 6356 - Subject: Accounting

Advanced Financial Reporting - ACCT 6333 Chapter 3 - Class Handouts - Consolidation Subsequent to the Date of Acquisition (5e) (Include Appendix 3A - Complete listing of required disclosures) The Consolidation Process (CEADI - "Seedy") C -Eliminate the Changes in the Equity Investment account during the year E Eliminate Stockholders' Equity of the subsidiary as of BOY A Eliminate the AAP (Acquisition Accounting Premium) as of BOY D Depreciation for current year AAP I - Eliminate intercompany transactions during the periods and remaining balances (more in Chapter 4) Why do I care? The consolidation process combines the financial statements of the parent and its sub by eliminating the Equity Investment related balance sheet and income statement accounts and replacing them with the assets, liabilities, revenues and expenses of the sub! 1What do you SEE when you have Financial Statements that represent a Parent and its Subsidiaries? Single Economic Entity

Example 1 -1styear consolidation McKinney Enterprises acquired Pottsboro, Inc. on January 1, 2021. Parent paid $1,000,000 in cash and issues 79,000 shares of its $1 par value common stock with a market value of $10 per share and exchanges those shares with the subsidiary's stockholders for all of the subsidiary's voting shares that they own. The excess of cost over book value of Pottsboro's net assets was partly attributable to a previously unrecognized patent valued by $210,000 with a 5-year life and undervalued PPE by $200,000 with a 10 year life. The remaining excess is considered goodwill. The parent uses the equity method of pre-consolidation Equity investment bookkeeping. a.What is the amount of goodwill with this transaction?