Consolidating financial statements eliminating entries daniela ruah dating david olson

Consolidating financial statements eliminating entries

The consolidated income statement reports all transactions with entities external to the combined parent and subsidiary entities.For example, if company ABC acquires XYZ, then the combined income statement cannot include sales from ABC to XYZ, nor can it include payment for services from XYZ to ABC.The consolidated balance sheet reports the assets, liabilities and shareholders' equity of the combined entities.If the parent acquires 100 percent of the subsidiary at book value, then the consolidated balance sheet does not have to account for positive or negative differences between the purchase price and the book value of the acquired company, which is the difference between its assets and liabilities.However, if ABC or XYZ sells to an external business entity, then those revenues are part of the consolidated income statement.Similarly, raw material purchases from external suppliers and salaries are also part of the consolidated income statement.

The accounting for this investment depends on the level of control of the parent company in the subsidiary.If the parent controls less than 100 percent of the shares of a subsidiary, then the consolidated balance sheet must have a separate line showing the non-controlling interest, which refers to the ownership interest of shareholders other than the parent company.For example, if a company acquires 90 percent of a subsidiary at book value for 0,000, then the non-controlling interest is 10 percent, or ,000 [0,000 x (10 / 90)].Fourth, readjust all the subsidiary's balance sheet accounts to the current fair market value of the accounts.Fifth, recognize a goodwill for the change in the assets value.

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In this case, the consolidated balance sheet would show an investment in subsidiary account for $450,000 and a non-controlling interest amount of $50,000.

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