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Session 6—Less Than 100% Formation Accounting

Session 6—Less Than 100% Formation Accounting. Parent Company Investment Analysis Consolidation post-acquisition. Parent Company Investment Analysis. Updating the equation: PC I NCI Capital (BV) + ( BV) = CS + APIC + RE Beg. Bal. Net Inc. Divs. End. Bal.

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Session 6—Less Than 100% Formation Accounting

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  1. Session 6—Less Than 100% Formation Accounting • Parent Company Investment Analysis • Consolidation post-acquisition Advanced Accounting-2012

  2. Parent Company Investment Analysis • Updating the equation: PC INCICapital (BV) + (BV) = CS + APIC + REBeg. Bal.Net Inc.Divs.End. Bal. Advanced Accounting-2012

  3. Parma (P-Co) and Saraceno (S-Co) Case #2 On December 31, 2010, the Parma Company, a Santa Barbara real estate development company, formed an 75% owned subsidiary, Saraceno Land and Recreation, by making a $600,000 investment. Saraceno issued 75,000 shares of $2 par value common stock to Parma. Saraceno’s only other transaction on December 31, 2010 was the purchase of land valued at $500,000. Saraceno earned $50,000 in 2011 and paid $12,000 in dividends. It also borrowed $100,000 from Parma. The balance is still unpaid. Required: a. Prepare P-Co’s analysis of this investment b. Record the investment on P-Co’s and S-Co’s books. b. Prepare the consolidation worksheet and consolidation entries at December 31, 2011. Advanced Accounting-2012

  4. Parent Co. Invest. Analysis Update Advanced Accounting-2012

  5. W/S Elimination Entries Entry S • Capital Stock-sub XXX Beg. S. R/E XXX Investment in sub XXX NCI in assets of sub XXX • Intercompany payable XXX Intercompany receivable XXX Entry P Advanced Accounting-2012

  6. W/S Elim. Entries, cont. Entry I • Equity in NI of sub XXX Investment in sub XXX • Investment in sub XXX Intracompany dividends XXX • NCI in NI of sub XXX NCI in div. from sub XXX NCI in assets of sub XXX Entry D Entry N Advanced Accounting-2012

  7. Consolidation W/S • See Parma #3 Advanced Accounting-2012

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