Consolidated vs consolidating six minute dating in chattanooga tn

Posted by / 25-Jul-2017 13:11

The purchasing company uses the cost method to account for this type of investment.Under the cost method, the investment is recorded at cost at the time of purchase.The company does not need any entries to adjust this account balance unless the investment is considered impaired or there are liquidating dividends, both of which reduce the investment account.Liquidating dividends : Liquidating dividends occur when there is an excess of dividends declared over earnings of the acquired company since the date of acquisition.When the amount of stock purchased is more than 50% of the outstanding common stock, the purchasing company has control over the acquired company.Control in this context is defined as ability to direct policies and management.

This balance increases with income and decreases for dividends from the subsidiary that accrue to the purchaser.Treatment of Purchase Differentials: At the time of purchase, purchase differentials arise from the difference between the cost of the investment and the book value of the underlying assets.Purchase differentials have two components: Purchase differentials need to be amortized over their useful life; however, new accounting guidance states that goodwill is not amortized or reduced until it is permanently impaired, or the underlying asset is sold.If other factors exist that reduce the influence or if significant influence is gained at an ownership of less than 20%, the equity method may be appropriate (FASB interpretation 35 (FIN 35) underlines the circumstances where the investor is unable to exercise significant influence).To account for this type of investment, the purchasing company uses the equity method.

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Treatment to the acquired company: The acquired company records in its books the receipt of the payment from the acquiring company and the issuance of stock.

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