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Consolidation of Accounts

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1. The requirement of consolidated financial statements for parent and subsidiary companies has become a controversial issue in the field of international accounting. U.S. GAAP requires parent and subsidiary companies to report their information on a consolidated basis. However, under IAS 27 Consolidated and Separate Financial Statements, the IASB allows for consolidated and separate (non-consolidated) accounting methods. Consider the impact of these accounting methods on financial statements and their users. Think about whether the IASB should require parent and subsidiary companies to report on a consolidated basis.
With these thoughts in mind I will do an assessment of the impact of consolidated and separate accounting methods on financial statements and their users. How do these two methods compare to each other? Provide your opinion on whether the IASB should require parent and subsidiary companies to report on a consolidated basis. (half page)

2. The requirement of consolidated financial statements for parent and subsidiary companies has become a controversial issue in the field of international accounting. U.S. GAAP requires parent and subsidiary companies to report their information on a consolidated basis. However, under IAS 27 Consolidated and Separate Financial Statements, the IASB allows for consolidated and separate (non-consolidated) accounting methods. Consider the impact of these accounting methods on financial statements and their users. Think about whether the IASB should require parent and subsidiary companies to report on a consolidated basis. I will complete an assessment of the impact of consolidated and separate accounting methods on financial statements and their users. How do these two methods compare to each other? Provide your opinion on whether the IASB should require parent and subsidiary companies to report on a consolidated basis. Be sure to support your response with references to this week's Learning Resources. (Half page

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1. IASB allows for consolidated and separate accounting methods. The impact of these methods on financial statements is that if there is consolidation, it is primarily for the benefits of the shareholders, lenders, and employees of the parent company. The financial statements do not show the financial performance of the subsidiaries. The focus on the consolidation is on the total resources of the combined company. It gives a clear picture of the entire company. Currently, IFRS 10 gives a new definition of control which is used to determine which entities are consolidated, IFRS 11 gives joint arrangements which describe the accounting for joint arrangements, and IFRS 12 requires disclosure of interests in other entities. The problem is that under ...

Solution Summary

The answer to this problem explains the need for consolidated financial statements for parent and subsidiary companies . The references related to the answer are also included.

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Merrill and GE Consolidation accounting and reporting

Please see the attached sheet.

1. Merrill acquires 100 percent of the outstanding voting shares of Harriss Company on January 1, 2004 for $390,000 in cash and stock. Harriss' book value of stockholders' equity is $280,000 on the acquisition date. Merrill is willing to pay $390,000 for a company with a book value of stockholders' equity of $280,000 because it feels that Harriss' buildings are undervalued by $70,000. It considers the remaining balance sheet items to be fairly valued (no book to market difference). The remaining $40,000 of purchase price excess over book value is ascribed to general unidentifiable intangible assets (e.g., goodwill). The balance sheets of the individual companies immediately following the acquisition follow:

January 1, 2004
Post-Acquisition Balance Sheets
Merrill, Harriss
Accounts Inc. Co.
Cash $ 84,000 $ 40,000
Receivables 160,000 90,000
Inventory 220,000 130,000
Investment in Harriss 390,000

Land 100,000 60,000
Buildings (net) 400,000 110,000
Equipment (net) 120,000 50,000
Totals $ 1,474,000 $ 480,000

Accounts payable $ 160,000 $ 30,000
Long-term liabilities 380,000 170,000
Common stock 500,000 40,000
Additional paid-in capital 74,000 -
Retained earnings 360,000 240,000
Totals $ 1,474,000 $ 480,000

All of the following questions relate to the consolidated balance sheet prepared immediately subsequent to the acquisition.

a. At what amount will the $390,000 investment in Harriss be reported on the consolidated balance sheet?

b. How will the $40,000 ascribed to general unidentified intangible assets be reported on the consolidated balance sheet (account title and $amount)?

c. At what amount will buildings be reported on the consolidated balance sheet?

d. Briefly describe the accounting for goodwill subsequent to the acquisition.

e. What will be the total dollar amount of consolidated stockholders' equity?

2. GE reports the following in footnotes to its 2004 10-K:

We adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46R, Consolidation of Variable Interest Entities (Revised), on January 1, 2004. The standard required us to consolidate investments previously accounted for as equity method, and added $2.6 billion of GECS assets and $2.1 billion of GECS liabilities to our consolidated balance sheet as of that date...This accounting change did not require an adjustment to earnings.

Briefly explain why this accounting change did not require an adjustment to earnings.

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