Analyzing Financing Activities CHAPTER
5 CHAPTER Analyzing Financing Activities
Intercorporate Investments Definitions Intercorporate investments investments by one corporation in the equity securities of another corporation Parent- corporation who controls generally through ownership of equity securities, the activities of another separate legal entity known as a subsidiary Parent-subsidiary relation -when one corporation owns all or a majority of the voting equity securities of another corporation
Intercorporate investments — investments by one corporation in the equity securities of another corporation Parent — corporation who controls, generally through ownership of equity securities, the activities of another separate legal entity known as a subsidiary Parent-subsidiary relation —when one corporation owns all or a majority of the voting equity securities of another corporation Intercorporate Investments Definitions
ntercorporate Investments Accounting Two basic methods for a parent to account for its ownership in a subsidiary: 1. Consolidated Financial Statements Balance sheet 2. Equity method accounting Balance sheet
Two basic methods for a parent to account for its ownership in a subsidiary: 1. Consolidated Financial Statements 2. Equity method accounting Intercorporate Investments Accounting
Intercorporate Investments Consolidated Financial Statements Consolidated financial statements report the results of operations and financial condition of a parent corporation and its subsidiaries in one set of statements Basic Technique of Consolidation Consolidation involves two steps: aggregation and elimination Aggregation of assets, liabilities, revenues, and expenses of subsidiaries with the parent Elimination of intercompany transactions (and accounts) between subsidiaries and the parel Note: Minority interest represents the portion of a subsidiary's equity securities owned by other than the parent company
Consolidated financial statements report the results of operations and financial condition of a parent corporation and its subsidiaries in one set of statements Consolidation involves two steps: aggregation and elimination Aggregation of assets, liabilities, revenues, and expenses of subsidiaries with the parent Elimination of intercompany transactions (and accounts) between subsidiaries and the parent Note: Minority interest represents the portion of a subsidiary’s equity securities owned by other than the parent company Intercorporate Investments Consolidated Financial Statements Basic Technique of Consolidation
ntercorporate Investments Illustration of Consolidation The Facts. Pharmaceutical Corp(parent) acquires silicon Supplies (subsidiary Assets and liabilities in the balance sheet of Silicon Supplies are at fair values Pharmaceutical pays $78, 000 (in millions) for 90% of Silicon Supplies' common stock fair values of net assets acquired equal 90%of$80,000,or$72,000 Accounts receivable of Pharmaceutical los. include $4, 000 owed to it by Silicon Supplies
The Facts: • Pharmaceutical Corp (parent) acquires Silicon Supplies (subsidiary) • Assets and liabilities in the balance sheet of Silicon Supplies are at fair values • Pharmaceutical pays $78,000 (in millions) for 90% of Silicon Supplies’ common stock — fair values of net assets acquired equal 90% of $80,000, or $72,000 • Accounts receivable of Pharmaceutical include $4,000 owed to it by Silicon Supplies Intercorporate Investments Illustration of Consolidation