Module 1 – Business Combination and Consolidation
Stock Acquisition – Consolidated Financial Statements – AFTER 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.
As discussed in ISMP #1 (Date of Acquisition) 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). We discussed a 3-Step Process (below) to be followed in the creation of consolidated financial statements. The same 3-Step Process is applied in Stock Acquisition – After Date of Acquisition but involves increased complexity due to the fact that time has passed (ongoing operations of the acquired company must be consolidated).
Unlike the accounting for stock acquisitions as of the date of acquisition (which required the preparation of the consolidated balance sheet only) the accounting for stock
acquisitions after the date of acquisition require consolidation for all financial statements (income statement, statement of retained earnings, balance sheet and statement of cash…