Post-Formation 100% by 4mZG9ne


									Session 4—Post-Formation
   Post-Formation
       Application of the Equity Method
       Investment analysis
       Consolidation entries
            S, A, I, D, and P
   Contingency consideration
   Other issues
       Use of NET capital assets
       Investment analysis with Bargain Purchase
        Advanced Accounting-2012                    4-1
                 Parent Co. Invest.
                  Analysis Update
Consider the Parrot Company information on pps. 88-95:

                 Parrot Investment         Sun Book Value          Excess Over/(Under) Fair Value

                   BV       EX          CS      APIC     R/E       TM       PAT     EQ       A/D        GW
Bal @ 1/1/10        400                  200     200
Sun Inc.            100                                     100
Sun Div.            (40)                                    (40)
Excess Amort
Bal @ 12/31/10      460          0       200      200        60         0      0         0          0        0

           Advanced Accounting-2012                                                                              4-2
  Entries on Parrot’s G/L
PCI                             100         To record
 Equity in NI-S                       100   Sun earnings

Cash                            40          To record Sun
 PCI                                  40    dividends

     Advanced Accounting-2012                               4-3
      W/S Elimination Entries
Entry S
     Capital Stock-sub              XXX
      Beg. S. R/E                    XXX
           Investment in sub               XXX

Entry A

     Misc. assets                   XXX
           Investment in sub               XXX

          Advanced Accounting-2012               4-4
      W/S Elimination Entries
Entry P
     Intercompany payable           XXX
           Intercompany receivable         XXX

Entry I
     Equity in NI of sub            XXX
           Investment in sub               XXX
Entry D
     Investment in sub              XXX
           Intracompany dividends          XXX

          Advanced Accounting-2012               4-5
    Contingent Consideration
   Two basic elements
       Cash
       Equity
   Estimated the likelihood of occurrence and
    record the present value of that amount
       Cash portion as “Contingent performance
        obligation”—a liability
       Equity portion as “APIC-contingent equity
        outstanding”—part of equity

        Advanced Accounting-2012                    4-6
    Contingency Realization
   Cash portion
       Estimate fair value annually
       Record actual payment, if any, and the residual gain or
   Equity portion
       Do not estimate fair value annually
       Adjust the firm’s equity based on the number of shares
        actually issued
       Total value of equity will not change but components will

        Advanced Accounting-2012                                  4-7
                   Other Issues
   Use NET assets only upon acquisition.
       Do not consider existing accumulated
        depreciation on the books of the acquired entity

        Advanced Accounting-2012                       4-8

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