1. Chapter 3 Consolidated Statements Subsequent to Acquisition

2. Consolidated statements subsequent to acquisition Worksheet procedures; Purchase Method Using the Income Distribution Schedule Reporting income for the consolidated company

3. Maintaining the investment account

4. Price paid:$ 800,000 Interest acquired: Common stock$ 200,000 Retained earnings 400,000 Total Equity 600,000 Ownership interest80%480,000 Excess cost320,000 Life Ann Amort Inventory (80%  50,000)40,000140,000 Building (80%  100,000)80,000204,000 Goodwill200,000n/a

5. Subsidiary income and dividends Year 1100,00010,000 Year 2150,00020,000 IncomeDividends Parent reports only 80% of above amounts

6. Parent recording of subsidiary income (year 1)

7. Parent recording of subsidiary income (year 2)

8. Worksheet procedures The RE of the Sub and the Investment account must be at the same point in time The account adjustments made require amortization for current and prior periods –No entries are made on either firm’s books for worksheet eliminations

9. Cost Method: Year 1

10. Cost Method: Year 2

11. Consolidation procedures for a pooling Recall that investment was recorded at amount equal to book value. If this was not the case, correct the investment account. Cost or equity method may be used (sophisticated equity has no application - no excess) There should not be any excess to distribute or amortize - it was just like a purchase at a price equal to underlying subsidiary book value!