A new employee has been given responsibility for preparing the consolidated fina

Question

A new employee has been given responsibility for preparing the consolidated financial statements of Sample Company. After attempting to work alone for some time, the employee seeks assistance in gaining a better overall understanding of the way in which the consolidation process works. You have been asked to provide assistance in explaining the consolidation process. The employee is asking you to respond to the following questions. Please provide full explanations and use examples to support your work.

1- Identify the eliminating entries be entered in the consolidation worksheet each time consolidated statements are prepared ?

2- Explain the process How is the beginning-of-period and end-of-period noncontrolling interest balance determined?

3- discuss critically the reasons stating which of the subsidiary's account balances must always be eliminated?

4- justify why the parent company's account balances must always be eliminated ?

the answer should be 800 - 1000 words

Explanation / Answer

Solution:-

1- Identify the eliminating entries be entered in the consolidation worksheet each time consolidated statements are prepared:-

The eliminating entries are recorded only in the consolidation worksheet and therefore do not change the balances recorded on the company's books. Each time consolidated statements are prepared the balances reported on the company's books serve as the starting point. Thus, all the necessary eliminating entries must be entered in the consolidation worksheet each time consolidated statements are prepared.

2- Explain the process How is the beginning-of-period and end-of-period noncontrolling interest balance determined:-

For acquisitions after the effective date of FASB 141R (ASC 805), the noncontrolling interest at a point in time is equal to its fair value on the date of combination, adjusted to date for a proportionate share of the undistributed earnings of the subsidiary and the noncontrolling interest’s share of any write-off of differential. Another approach to determining the noncontrolling interest at a point in time is to add the remaining differential at that time to the subsidiary’s common stockholders’ equity and multiply the result by the noncontrolling interest’s proportionate ownership interest in the subsidiary.

In the consolidation worksheet the ending balance assigned to noncontrolling interest is derived by crediting noncontrolling interest for the starting balance, as indicated in the above statement, and then adding income assigned to the noncontrolling interest in the consolidated income statement and deducting a pro rata portion of subsidiary dividends declared during the period.

3- Discuss critically the reasons stating which of the subsidiary's account balances must always be eliminated:-

All the stockholders' equity account balances of the subsidiary must be eliminated each time consolidated financial statements are prepared. Intercompany receivables and payables, if any, must also be eliminated.

4- Justify why the parent company's account balances must always be eliminated:-

As the subsidiary has to eliminate equity, the parent must eliminate the income from the subsidiary. Because of consolidation, the parent will no longer have income coming in from the dissolution of the subsidiary and must eliminate all intakes from the partnership.

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