Chapter 5 Of Acc 401

The best measure of fair value per share for the noncontrolling interest in a subsidiary at the date of acquisition, if the subsidiary's stock is actively traded, is the market value per share. This is because the market value reflects the current price at which the stock is being traded in the market, and it represents the fair value of the shares. The market value per share takes into account the supply and demand dynamics in the market and is considered a reliable indicator of the true value of the shares.

Noncontrolling interest is reported on the consolidated financial statements as a distribution of consolidated net income on the consolidated income statement. This means that the portion of net income attributable to the noncontrolling interest is distributed and shown as an expense on the consolidated income statement. This reflects the share of profits that belongs to the noncontrolling shareholders of a subsidiary company.

Noncontrolling interest refers to the ownership interest in a subsidiary that is not owned by the parent company. It represents the portion of the subsidiary's equity that is held by outside shareholders. As such, it is reported as an equity item on the consolidated balance sheet. This is because noncontrolling interest represents the shareholders' ownership in the subsidiary and should be included in the overall equity section of the consolidated financial statements.

In an acquisition reported as a bargain purchase, the fair values of the acquired company's assets are greater than their book values. This means that the acquirer is paying less for the assets than their fair values. As a result, the acquirer will have a lower noncontrolling interest in equity because they are acquiring a larger portion of the company's assets at a lower cost.

The noncontrolling interest in consolidated net income is reported on the consolidated income statement as a distribution of consolidated net income. This means that the portion of net income attributable to the noncontrolling interest is distributed to the noncontrolling shareholders. This is done to reflect the fact that the noncontrolling shareholders have a claim on the earnings of the subsidiary company.

The main difference in per-share value between the controlling and noncontrolling interest is a control premium for the acquirer’s interest. This means that the acquiring company is willing to pay a higher price per share for the controlling interest in order to gain control and decision-making power over the acquired company. The noncontrolling interest, on the other hand, does not have the same level of control and therefore does not command the same premium.

SFAS 160, which stands for Statement of Financial Accounting Standards No. 160, introduces new requirements for displaying noncontrolling interests in the consolidated income statement. These requirements aim to improve transparency and provide more accurate information about the financial performance of a company. Under SFAS 160, noncontrolling interests are presented as a separate line item in the consolidated net income. This means that the net income attributable to noncontrolling interests is deducted from the consolidated net income. As a result, the consolidated net income increases because the portion of net income belonging to noncontrolling interests is no longer included in the consolidated net income.

Cash dividends paid to the shareholders of the parent company are reported in the financing activities section of the consolidated statement of cash flows. This section includes activities that involve obtaining or repaying capital, such as issuing or repurchasing shares, paying dividends, or borrowing or repaying loans. Cash dividends are considered a financing activity because they involve distributing profits to the shareholders, which reduces the company's retained earnings and represents a return of capital to the owners. Therefore, the cash outflows from paying dividends are reported in the financing activities section.

In a bargain purchase with noncontrolling interest, the investment balance is not reported at acquisition cost. Instead, it is reported at fair value. This is because a bargain purchase occurs when the fair value of the net assets acquired exceeds the consideration paid. In this situation, the acquirer recognizes a gain on the bargain purchase, which is calculated as the excess of the fair value of the net assets acquired over the consideration paid. Therefore, the investment balance is adjusted to reflect the fair value of the net assets acquired.

When X becomes Y's primary beneficiary, it implies that X has the power to direct the activities that most significantly impact Y's economic performance. As a result, X is required to consolidate Y's financial statements. In the consolidated financial statements, the noncontrolling interest represents the portion of Y's net assets that is not owned by X. Since X has no equity ownership in Y, the noncontrolling interest is equal to the fair value of Y's net assets.

Dividends paid to noncontrolling shareholders should appear in the Financing activities section of the consolidated statement of cash flows. This section includes cash flows related to the company's financing activities, such as issuing or repurchasing stocks, borrowing or repaying loans, and paying dividends to shareholders. Since dividends paid to noncontrolling shareholders represent a distribution of profits to these shareholders, it is considered a financing activity and should be reported in this section.

According to the given answer, under IFRS, noncontrolling interests are reported at 10% of the fair value of the subsidiary's identifiable net assets at the date of acquisition. This value is then adjusted for the accumulated noncontrolling interests' share of the subsidiary's net income and dividends since acquisition. This means that IFRS requires a specific valuation method for noncontrolling interests on the consolidated balance sheet, taking into account the fair value of the subsidiary's net assets and the noncontrolling interests' share of the subsidiary's financial performance since acquisition.

In a consolidation elimination at the date of acquisition, the parent company includes the subsidiary's assets and liabilities in its financial statements. Since the parent owns 85% of the subsidiary's voting stock, it has control over the subsidiary and therefore, the majority of the previously unreported identifiable intangible assets, valued at $10,000,000, will be attributed to the controlling interest. The statement that "Less than 15% of the previously unreported identifiable intangible assets are attributed to the noncontrolling interest" is true because the parent company owns the majority of the subsidiary's voting stock.

When a parent owns less than 100% of the voting stock of its subsidiary, it means that there are noncontrolling interests in the subsidiary. Noncontrolling interests refer to the portion of the subsidiary's net income that is attributable to the shareholders who do not have voting control. Therefore, when calculating earnings per share on the consolidated income statement, it is appropriate to use consolidated net income less noncontrolling interest in net income in the numerator. This reflects the portion of the earnings that belong to the parent company's shareholders after accounting for the interests of the noncontrolling shareholders.

Intercompany sales refer to the transactions between a parent company and its subsidiary. These sales are considered internal transactions and do not involve any external parties. Therefore, they are not reported on the consolidated statement of cash flows, which only includes cash flows from external sources. The statement focuses on the cash flows related to operating activities, investing activities, and financing activities that involve external parties. Since intercompany sales do not fall under any of these categories, they are not reported on the statement.

The correct answer is that the noncontrolling interest is initially reported at 25% of the target company's book value. This is because the acquirer uses the alternative valuation method for noncontrolling interests, which is allowed under IFRS but not under U.S. GAAP. Under this method, the noncontrolling interest is initially recognized at its proportionate share of the target company's identifiable net assets, which in this case is 25% of the book value.

The correct answer is the parent’s book value of intangibles plus the subsidiary’s book value of intangibles, plus the unamortized revaluations of the subsidiary’s intangibles. This is because when preparing consolidated financial statements, the parent company includes its own intangible assets and the intangible assets of its subsidiary. Additionally, any revaluations of the subsidiary's intangible assets that have not been amortized need to be included in the consolidated balance sheet. Since the parent owns 80% of the subsidiary's voting stock, it is appropriate to include 80% of the subsidiary's book value of intangibles in the consolidation.

The correct answer is 10% of the unamortized value of the leaseholds as of the beginning of the current year. This is because when P acquires 90% of S's voting stock, it gains control over S and is required to eliminate the noncontrolling interest's share of S's equity. In this case, the noncontrolling interest's share is 10% of the unamortized value of the leaseholds, which is a previously unreported asset of S. Therefore, this amount needs to be eliminated from the noncontrolling interest's equity.

The noncontrolling interest in net income represents the portion of the subsidiary's net income that is attributable to the minority shareholders. Under both U.S. GAAP and IFRS, the noncontrolling interest in net income is calculated based on the subsidiary's net income after deducting any goodwill impairment. Since the question states that goodwill is not impaired, the noncontrolling interest in net income will be the same under both U.S. GAAP and IFRS. Therefore, the correct answer is "Always the same as noncontrolling interest in net income as measured using IFRS."

A bargain purchase consolidation differs from a normal consolidation in that it requires a "R" (revaluation) elimination entry. This entry is necessary when the fair value of the acquired assets exceeds the purchase price, resulting in a gain on bargain purchase. In a normal consolidation, there may be elimination entries for intercompany transactions (E) and unrealized profits (O), but the revaluation entry is specific to a bargain purchase consolidation.

When preparing the consolidated statement of cash flows using the indirect method, goodwill impairment charges are added to consolidated net income. This is because goodwill impairment charges are non-cash expenses that reduce net income but do not affect the actual cash flow. Therefore, they need to be added back to net income to accurately determine the cash generated from operating activities.

In the operating section of the consolidated statement of cash flows, using the indirect method, noncontrolling interest in net income is not subtracted from net income. This is because noncontrolling interest represents the portion of the subsidiary's net income that does not belong to the parent company. Since the consolidated statement of cash flows is prepared to show the cash flows of the entire consolidated entity, including both the parent and subsidiary, noncontrolling interest is not subtracted from net income in this section.

Entry (O) shows no goodwill impairment loss. This means that in subsequent years, when there is a 5% noncontrolling interest, there is no impairment loss recorded for the goodwill of the subsidiary. This suggests that the subsidiary's goodwill is still considered to have its full value and is not impaired.

When X becomes the primary beneficiary of Y Company, it means that X has the power to direct the activities that most significantly impact Y's economic performance and has the right to receive the majority of the benefits and losses from Y's activities. However, X Company does not have any equity ownership in Y Company. Therefore, X does not consolidate Y, which means that Y's financial statements are not combined with X's financial statements. Since there is no consolidation, there is also no consolidated noncontrolling interest. Consolidated noncontrolling interest represents the portion of a subsidiary's net assets that is not owned by the parent company. Since there is no consolidation, the consolidated noncontrolling interest does not exist. Therefore, the statement "Consolidated noncontrolling interest equals the book value of Y’s net assets" is true.

When there is no noncontrolling interest in the acquired subsidiary, both U.S. GAAP and IFRS valuation methods will be the same regardless of which valuation method is used under IFRS. This means that the accounting treatment for valuing the acquired subsidiary's goodwill will be identical under both standards.