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Subsidiary Preferred Stock, Consolidated Earnings per Share, and Consolidated Income Taxation. Chapter 10. Learning Objective 1. Modify consolidation procedures for subsidiary companies with preferred stock in their capital structure. Subsidiaries with Preferred Stock Outstanding. - PowerPoint PPT Presentation
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10 - 1©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary Preferred Stock,Consolidated Earnings per Share,and Consolidated Income Taxation
Chapter 10
10 - 2©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Learning Objective 1
Modify consolidation proceduresfor subsidiary companies with
preferred stock in theircapital structure.
10 - 3©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiaries with PreferredStock Outstanding
When preferred stock has a call orredemption price, this amount is used
in allocating the investee’s equityto preferred stockholders.
10 - 4©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiaries with PreferredStock Outstanding
If there is no redemption provision,the equity is allocated on the basis of
par value plus any liquidation premium.1
Any dividends in arrears on cumulative preferred stock is allocated to the
preferred stockholders.2
10 - 5©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary With Preferred StockNot Held by Parent
Poe acquired a 90% interest in Solon January 1, 2004, for $395,500.There were no preferred dividends
in arrears as of January 1, 2004.During 2004, Sol had income of
$50,000 and paid $30,000 dividends.Dividends were $20,000 on commonstock and $10,000 on preferred stock.
10 - 6©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary With Preferred StockNot Held by Parent
$10 preferred stock, $100 par, cumulative, nonparticipating, callable at $105 per share $100,000Common stock, $10 par 200,000Other paid-in capital 40,000Retained earnings 160,000Total stockholders’ equity $500,000
Sol’s stockholders’ equity December 31, 2003
10 - 7©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary With Preferred StockNot Held by Parent
Total Sol stockholders’ equity $500,000Less: Preferred stockholders’ equity (1,000 × $105) –105,000Common stockholders’ equity $395,000Price paid for 90% interest $395,500Less: Book and fair value acquired ($395,000 × 90%) –355,500Goodwill $ 40,000
10 - 8©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary With Preferred StockNot Held by Parent
Total stockholders’ equity $520,000Less: Preferred stockholders’
equity (1,000 × $105) –105,000Common stockholders’ equity $415,000
Sol’s stockholders’ equity December 31, 2004
10 - 9©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Minority Interest inPreferred Stock
$105,000 × 100% of preferred equity $105,000$415,000 × 10% of common equity 41,500Total $146,500
Minority interest in Sol at December 31, 2004
10 - 10©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary Preferred StockAcquired by Parent
A parent company’s purchase of theoutstanding preferred stock of a subsidiary
results in a retirement of the stock purchasedfrom the viewpoint of the consolidated entity.
10 - 11©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary Preferred StockAcquired by Parent
Sol Corporation experienceda loss of $40,000 in 2005.
What is Sol’s stockholders’equity at 12/31/2005?
$520,000 – $40,000 = $480,000
No dividends were paid.
10 - 12©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary Preferred StockAcquired by Parent
What is Poe’s share of this loss?
($40,000 + $10,000 income to preferred) × 90%
What is Poe’s investment in Sol on 12/31/2005?
10 - 13©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary Preferred StockAcquired by Parent
Poe’s Investment1/1/2004 395,50012/31/2004 36,0001/1/2005 413,500
368,500
18,000
45,000 loss
Dividends
12/31/2005
10 - 14©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Constructive Retirement ofSubsidiary Preferred Stock
On January 1, 2006, Poe purchased 800 of Sol’spreferred shares (80% interest) at $100 per share.
$115,000 × 80% = $92,000 book value$92,000 – $80,000 = $12,000
Sol reports net income of $20,000 for 2006.
10 - 15©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Constructive Retirement ofSubsidiary Preferred Stock
Investment in Sol Preferred 80,000Cash 80,000
To record purchase of stock
Investment in Sol Preferred 12,000Other Paid-in Capital 12,000
To adjust other paid-in capital to reflect constructive retirement
10 - 16©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Constructive Retirement ofSubsidiary Preferred Stock
Poe’s Investment1/1/2004 395,50012/31/2004 36,0001/1/2005 413,500
368,500 9,000377,500
18,000
45,000 loss
Dividends
12/31/2006
Income
10 - 17©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Learning Objective 2
Calculated basic and dilutedearnings per share for a
consolidated reporting entity.
10 - 18©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Parent Company and ConsolidatedEarnings Per Share
GAAP requires that all firms calculate andreport basic and diluted (where applicable)
earnings per share (EPS).
Consolidated entities disclose (EPS)on a consolidated basis.
10 - 19©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Parent Company and ConsolidatedEarnings Per Share
A parent company’s net income and EPSunder the equity method are equal to
consolidated net income and consolidated EPS.
Parent Company procedures for computing EPSdepend on the subsidiary’s capital structure.
10 - 20©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
General Format for EPS Calculations
Numerator in Dollars ($) AIncome to parent’s common stockholders $$$Add: Adjustments for parent’s dilutive securities + $Add: Adjustments for subsidiary’s potentially
dilutive securities convertible into parentcompany stock N/A
Replacement calculationDeduct: Parent’s equity in subsidiary’s
diluted earnings N/AAdd: Parent’s equity in subsidiary’s
diluted earnings N/AParent's diluted earnings = a $$$A: Subsidiary does not have potentially dilutive securities outstanding
10 - 21©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
General Format for EPS Calculations
Numerator in Dollars ($) BIncome to parent’s common stockholders $$$Add: Adjustments for parent’s dilutive securities + $Add: Adjustments for subsidiary’s potentially
dilutive securities convertible into parentcompany stock N/A
Replacement calculationDeduct: Parent’s equity in subsidiary’s
diluted earnings – $Add: Parent’s equity in subsidiary’s
diluted earnings + $Parent's diluted earnings = a $$$B: Subsidiary has potentially dilutive securities convertible into subsidiary common stock
10 - 22©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
General Format for EPS Calculations
Numerator in Dollars ($) CIncome to parent’s common stockholders $$$Add: Adjustments for parent’s dilutive securities + $Add: Adjustments for subsidiary’s potentially
dilutive securities convertible into parentcompany stock + $
Replacement calculationDeduct: Parent’s equity in subsidiary’s
diluted earnings N/AAdd: Parent’s equity in subsidiary’s
diluted earnings N/AParent's diluted earnings = a $$$C: Subsidiary has potentially dilutive securities convertible into parent company common stock
10 - 23©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
General Format for EPS Calculations
Denominator in Shares (Y) AParent’s common shares outstanding YYYAdd: Shares represented by parent’s
potentially dilutive securities + YAdd: Shares represented by subsidiary’s
potentially dilutive securities convertibleinto parent company common shares N/A
Parent’s common shares and commonshare equivalents = b YYY
Parent Company and Consolidated Diluted EPS a ÷ bA: Subsidiary does not have potentially dilutive securities outstanding
10 - 24©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
General Format for EPS Calculations
Denominator in Shares (Y) BParent’s common shares outstanding YYYAdd: Shares represented by parent’s
potentially dilutive securities + YAdd: Shares represented by subsidiary’s
potentially dilutive securities convertibleinto parent company common shares N/A
Parent’s common shares and commonshare equivalents = b YYY
Parent Company and Consolidated Diluted EPS a ÷ bB: Subsidiary has potentially dilutive securities convertible into subsidiary common stock
10 - 25©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
General Format for EPS Calculations
Denominator in Shares (Y) CParent’s common shares outstanding YYYAdd: Shares represented by parent’s
potentially dilutive securities + YAdd: Shares represented by subsidiary’s
potentially dilutive securities convertibleinto parent company common shares + Y
Parent’s common shares and commonshare equivalents = b YYY
Parent Company and Consolidated Diluted EPS a ÷ bC: Subsidiary has potentially dilutive securities convertible into parent company common stock
10 - 26©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Dilutive Securities of SubsidiaryConvertible into Subsidiary Shares
Diluted earnings of the parent company areadjusted by excluding the parent’s equity insubsidiary realized income and replacing
that equity with the parent’s share ofdiluted earnings of the subsidiary.
10 - 27©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary With ConvertiblePreferred Stock
Plant Corporation purchased 90% of SeedCorporation’s outstanding voting common
stock for $328,000 on January 1, 2003.During 2003, Seed reports $50,000 netincome and pays $25,000 dividends,
$10,000 to preferred and $15,000 to common.
10 - 28©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary With ConvertiblePreferred Stock
Common stock, $5 par, 200,000shares issued and outstanding $1,000,000
Common stock, $10 par,20,000 shares outstanding $200,000
10% cumulative, convertiblepreferred stock, $100 par,1,000 shares outstanding 100,000
Retained earnings 500,000 120,000Total stockholders’ equity $1,500,000 $420,000
January 1, 2003 Plant Seed
10 - 29©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary With ConvertiblePreferred Stock
Income from Plant’s operations $150,000Income from Seed
($50,000 – $10,000 preferred income) × 90% 36,000Plant net income $186,000
Plant’s Income for 2003
10 - 30©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary Preferred StockConvertible into Subsidiary
Common
Seed’s preferred stock is convertible into12,000 shares of Seed’s common stock.Neither Plant nor Seed has any other
potentially dilutive securities outstanding.Seed’s diluted EPS:
$50,000 ÷ (20,000 + 12,000) = $1.5625
10 - 31©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary Preferred StockConvertible into Subsidiary
CommonNet income of Plant $186,000Replacement of Plant’s equity in Seed’s
realized income ($40,000 × 90%) – 36,000with Plant’s equity in Seed’s dilutedearnings (18,000 × $1.5625) 28,125
Plant’s diluted earnings = a $178,125
Plant’s outstanding shares = b 200,000Plant’s diluted EPS = a ÷ b $ 0.89
Plant’s Diluted EPS
10 - 32©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary Preferred Convertibleinto Parent Company Common
Seed’s preferred stock is convertible into24,000 shares of Plant’s common stock.
Neither Plant nor Seed had otherpotentially dilutive securities outstanding.Seed’s diluted EPS is $2 ($40,000 income
to common ÷ 20,000 common shares). What is Plant’s diluted EPS?
10 - 33©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary Preferred Convertibleinto Parent Company Common
Net income of Plant $186,000Add: Income to preferred stockholders
of Seed assumed to be converted 10,000Plant’s diluted earnings = a $196,000Plant’s outstanding shares 200,000Add: Seed’s preferred shares
assumed converted 24,000Plant common shares and common
stock equivalents = b 224,000Plant’s diluted EPS = a ÷ b $ 0.88
10 - 34©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary With Optionsand Convertible Bonds
Own operations $1,500,000Syd’s operations $ 300,000
Paddy’s income 2003
Syd is 80% owned by Paddy.80% × $450,000 Syd net income $360,00080% × $50,000 unrealized profit – 40,000Amortization – 20,000Income from Syd $300,000
10 - 35©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Subsidiary With Optionsand Convertible Bonds
Paddy: Common stock, 1,000,000 sharesSyd: Common stock, 400,000 shares
Options to purchase 60,000 shares of stock at $10 per share (average market price is $15 per share) 7% convertible bonds, $1,000,000
par outstanding, convertible into 80,000 shares of common stock
10 - 36©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Options and Bonds Convertibleinto Subsidiary Common Stock
Syd’s income to common stockholders $450,000Less: Unrealized profit on sale of land – 50,000Add: Net-of-tax interest expense assuming
bonds converted into subsidiary shares($1,000,000 × 7% × 66% net of tax) 46,200
Subsidiary adjusted earnings = a $446,200
10 - 37©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Options and Bonds Convertibleinto Subsidiary Common Stock
Syd’s common shares outstanding 400,000Incremental shares
60,000 – ($600,000 ÷ $15) 20,000Additional shares assuming bonds
converted into subsidiary shares 80,000Syd’s adjusted shares = b 500,000Syd’s diluted EPS = a ÷ b
($446,200 ÷ 500,000) $ 0.89
10 - 38©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Options and Bonds Convertibleinto Subsidiary Common Stock
Paddy’s income to common stockholders $1,800,000Replacement of Paddy’s equity in
Syd’s realized income ($400,000 × 80%) – 320,000with Paddy’s equity in Syd’sdiluted EPS (320,000 × $0.89) 284,800
Paddy adjusted earnings = a $1,764,800
Paddy outstanding shares = b 1,000,000Paddy’s diluted EPS = a ÷ b $ 1.76
10 - 39©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Options and Bonds Convertibleinto Parent’s Common Stock
Paddy’s income to common stockholders $1,800,000Add: Net-of-tax interest expense assuming
bonds were converted into shares($1,000,000 × 7% × 66% net-of-tax effect) 46,200
Paddy’s adjusted earnings = a $1,846,200
10 - 40©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Options and Bonds Convertibleinto Parent’s Common Stock
Paddy’s common shares outstanding 1,000,000Incremental shares
60,000 – ($600,000 ÷ $15) 20,000Additional shares assuming bonds
are converted into parent shares 80,000Paddy’s adjusted shares = b 1,100,000Paddy’s diluted EPS = a ÷ b ($1,846,200 ÷ 1,100,000) $ 1.68
10 - 41©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Learning Objective 3
Understand the complexities ofaccounting for income taxes
by consolidated entities.
10 - 42©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Income Taxesof Consolidated Entities
An affiliated group exists when a commonparent corporation owns at least 80% of thevoting power of all classes of stock and 80%or more of the total value of all outstandingstock of each of the includable corporations.
10 - 43©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Income Taxesof Consolidated Entities
A consolidated entity that is anaffiliated group may elect to fileconsolidated income tax returns.
All other consolidated entities mustfile separate income tax returns for
each affiliated company.
10 - 44©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Advantages of FilingConsolidated Returns
1 Losses are offset against incomebetween members.
2 Intercorporate dividends areexcluded from taxable income.
3 Intercompany profits are deferredfrom income until realized.
10 - 45©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Disadvantages of FilingConsolidated Returns
1 Decrease in flexibility.
2 Commitment to consolidatedreturns year after year.
3 Deconsolidated corporationscannot rejoin the group for 5 years.
10 - 46©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Income Tax Allocation
FASB Statement No. 109, “Accounting forIncome Taxes,” is the primary source ofGAAP for accounting for income taxes.
Events that have future tax consequencesare designated temporary differences.
10 - 47©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Income Tax Allocation
The objectives of accounting forincome taxes are to recognize the amount
of taxes payable or refundable for thecurrent year and to recognize deferred tax
liabilities and assets for the tax consequencesof events that have been recognized in the
financial statements or tax returns.
10 - 48©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Distributedand Undistributed Income
Parson owns a 30% interest in SeatonCorporation, a domestic corporation.Seaton reports $600,000 net income
and pays dividends of $200,000.The income tax rate is 34%.
What is Parson’s shareof Seaton’s income?
10 - 49©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Distributedand Undistributed Income
Share of distributed earnings (dividends)($200,000 × 30%) $ 60,000
Share of undistributed earnings(retained earnings increase)($400,000 × 30%) 120,000
Equity in Seaton’s earnings $180,000
10 - 50©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Accounting for Distributedand Undistributed Income
The income tax expense equals income taxliability for the dividends received.
$60,000 × 20% taxable × 34% tax rate = $4,080December 31, 2003Income Tax Expense 8,160
Deferred Income Taxes 8,160To provide for taxes on undistributed earnings($120,000 × 20% × 34% = $8,160)
10 - 51©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Unrealized Gains and Lossesfrom Intercompany Transactions
Unrealized and constructive gains and losses createtemporary differences that may affect deferred taxcalculations when filing separate income tax returns.
This is not the case when filing consolidated returns.
10 - 52©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Separate Company Tax Returnswith Intercompany Gain
Paco Corporation paid $375,000 for a 75%interest in Step on January 1, 2003.
Step’s equity consisted of $300,000 capitalstock and $200,000 retained earnings.
10 - 53©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Separate Company Tax Returnswith Intercompany Gain
Paco had a deferred tax liability of$10,200, consisting of $30,000 tax/bookdepreciation differences that reverse inequal ($7,500) amounts over the years.
On January 8, 2003, Paco sold equipmentto Step at a gain of $20,000.
Step is depreciating the equipmentover five years (S/L).
10 - 54©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Separate Company Tax Returnswith Intercompany Gain
Sales $380,000 $300,000Gain on equipment sale 20,000 –Income from Step 23,600 –Cost of sales –200,000 –180,000Operating expenses –100,000 – 40,000Income tax expense – 31,253 – 27,200
Net income $ 92,347 $ 52,800Add: Beginning retained earnings 357,653 200,000Deduct: Dividends (December) – 50,000 – 28,000Retained earnings 12/31/2003 $400,000 $224,800
12/31/2003 Paco Step
10 - 55©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
One-Line Consolidation
January 1, 2003Investment in Step 375,000
Cash 375,000To record purchase of 75% interestDecember 2003Cash 21,000
Investment in Step 21,000To record dividends received
10 - 56©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
One-Line Consolidation
December 31, 2003Investment in Step 23,600
Income from Step 23,600To record income from StepPaco’s share of Step net income
($52,800 × 75%) $39,600Less: Unrealized profit –20,000Add: Piecemeal recognition of gain 4,000Income from Step $23,600
10 - 57©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Schedule of DeferredIncome Tax Liability
Temporary FutureDifference 2003 2004-7 Years
Depreciation $ 7,500Gain on equipment $20,000Piecemeal recognition – 4,000 – 4,000Future dividends – 3,720 – $3,720Taxable in future years $ 3,500 $3,720Enacted tax rate 34% 34%Deferred tax liability $ 1,190 $1,265
10 - 58©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Business Combination
Taxable combination
Tax-free reorganization
10 - 59©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Business Combination
In a purchase business combination,the cost/book value differential is
allocated to the assets and liabilitiesacquired at gross fair values, anda deferred tax asset or liability is
recorded for the related tax effect.
10 - 60©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Financial Statement Disclosuresfor Income Taxes
GAPP divides deferred assets or liabilities.
Current Noncurrent
10 - 61©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
Financial Statement Disclosuresfor Income Taxes
GAPP requires disclosure for incometax expense and benefits allocated to:
Continuing operationsDiscontinued operations
Extraordinary itemsCumulate effect type
Prior period adjustments
10 - 62©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
End of Chapter 10