Module 1 – Business Combination and Consolidation
Stock Acquisition – Consolidated Financial Statements – Date of Acquisition
Instructor Comment: The following lesson module was developed to assist students in their understanding of the corresponding subject matter in the course textbook. The following is not a replacement for the detailed presentation provided by the authors of the text, but instead is an attempt to provide students with a pragmatic direct review with heavy emphasis on process.
My recommendation is to approach the course material in the following sequence.
Read/study the assigned corresponding sections of the text.
Read the “Chapter Review” (PowerPoint) posted in D2L.
Read/complete the corresponding instructor developed “Instructor Subject Matter Presentation” (THIS DOCUMENT) posted in D2L.
Complete the assigned text questions, exercises and problems (author recommended solutions for assigned odd exercises posted in D2L).
Review the corresponding instructor developed “Instructor Problem Solving Modules” posted in D2L.
For stock acquisitions where significant influence and control exist, the acquirer (parent) is required by the SEC, for financial reporting purposes, to consolidate the acquired company (subsidiary). The development of consolidated financial statements is a complex process. In an effort to focus on the key aspects required for the accounting of consolidations we will apply a 3- Step Process.
Step Process:
•Confirm business combination is a Stock Acquisition which requires consolidation
•Determine where (timing) in the accounting process
•% Ownership
•Calcualate the Difference
•Fair Value versus Book Value
•Complete the Workpaper
•Complete Financial Statement
The application of the 3-Step Process will be demonstrated using a business case involving an acquisition.
Business Case – Paper & Ink Corporation
Paper & Ink Corporation is a manufacturer of computer paper and ink cartridges that supplies independent…