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apple123
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Joined: 22 Sep 2009
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Posted: 22 Sep 2009 at 00:39 \| IP Logged

Can someone please clarify what should and should not be added across for consolidation? I know the Common stock, Retained earnings and APIC accounts of the subsidiary should all be eliminated. However, one of the HW questions from Becker says that the consolidated net income is always the parent's net income. While the book says the consolidated income statement will include 100% of the subsidiary's revenues and expenses. I'm a bit confused as to what should or should not be eliminated. Thanks!

Zeratul
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Joined: 11 Jun 2009
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Posted: 22 Sep 2009 at 04:24 \| IP Logged

Once entry *C has been made (converting the investment in sub to equity method), parent's income should equal consolidated NI. Basically, you remove the investment in sub account (Entry I) and directly consolidate revenues and expenses line by line.
If parent ownership of the sub is 100%, then 100% of sub income would be consolidated. Otherwise, on the consolidated I/S, there will be some additional lines breaking down income between consolidated entity (parent's NI+parent's interest in sub*sub NI) and NCI (NCI's interest*sub NI).

In general, if you want to remember what should be removed, just remember the entries:
(S) Remove stockholder accounts
(A) Adjustment to fair value from book value
(D) Remove intercompany dividends
(I) Remove intercompany income
(E) Excess amortization of fair value over book value
(P) Remove intercompany payables/recievables
(*C) Convert sub income account on parent's books to equity method.

There are a few others to remove as well (intercompany transactions), but that's another can of worms.

Hope that helps!

apple123
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Posted: 22 Sep 2009 at 12:08 \| IP Logged

Thanks a lot, Zeratul! I will definitely use that as a guide.

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