高级会计学(第10版)教师手册Beams10e_IM_6.pdf

《高级会计学(第10版)教师手册Beams10e_IM_6.pdf》由会员分享，可在线阅读，更多相关《高级会计学(第10版)教师手册Beams10e_IM_6.pdf（17页珍藏版）》请在淘文阁 - 分享文档赚钱的网站上搜索。

1、 2009 Pearson Education,Inc.publishing as Prentice Hall 98 Chapter 10 SUBSIDIARY PREFERRED STOCK,CONSOLIDATED EARNINGS PER SHARE,AND CONSOLIDATED INCOME TAXATION Chapter Outline SUBSIDIARIES WITH PREFERRED STOCK OUTSTANDING(Illustration 10-1)A The stockholders equity of a subsidiary with preferred s

2、tock outstanding is allocated to the preferred stockholders,based on the preferred contract,and the remainder is common stockholders equity.1 The preferred stockholders equity is based on the call or redemption price.2 If the preferred stock has no redemption provision,the preferred equity is based

3、on par value plus any liquidation premium.3 If the preferred stock is cumulative,the preferred stockholders equity includes any dividends in arrears.B Net income of an investee or subsidiary with preferred stock outstanding is allocated to the preferred stockholders,based on the preferred contract,a

4、nd the remainder is allocated to common stockholders.1 If the preferred stock is nonparticipating,income is assigned to preferred stockholders based on the preference rate or amount.2 If the preferred stock is cumulative and nonparticipating,the current year dividend requirement is assigned to prefe

5、rred stock,regardless of whether the directors declare any dividend.3 If the preferred stock is noncumulative and nonparticipating,only dividends declared and in the amount declared are assigned to preferred stockholders.C A parent company buys common stock of a subsidiary that has cumulative,nonpar

6、ticipating preferred stock in its capital structure:1 Preferred equity is deducted from total stockholders equity to determine common stockholders equity.2009 Pearson Education,Inc.publishing as Prentice Hall 99 2 The price paid for the investment in common equity is compared to the fair value the c

7、ommon equity interest acquired to determine goodwill.3 The parents share of subsidiary reported income is its ownership interest times the subsidiarys income allocated to the common stock.4 Noncontrolling interest that appears in the consolidated balance sheet consists of the preferred stockholders

8、equity plus the noncontrolling interest in the subsidiarys common stockholders equity.5 Noncontrolling interest income in the consolidated income statement consists of the income to preferred stockholders plus the noncontrolling interests share of the subsidiarys income to common stock.6 In the cons

9、olidation working papers,an entry is necessary to reclassify the preferred stock as noncontrolling interest.D A parent company acquires the preferred stock of a subsidiary:1 From the viewpoint of the consolidated entity,the preferred stock is retired and no longer a noncontrolling interest.a The ret

10、irement of the preferred stock is really a constructive retirement because the stock will be reported as outstanding in the separate financial statements of the subsidiary.2 In the consolidation working papers,the equity related to the preferred stock held by the parent and the investment in preferr

11、ed stock are eliminated a Any difference is charged or credited to additional paid-in capital.If additional paid-in capital is insufficient to absorb the excess of purchase price over book value,the parents retained earnings is charged.3 In the parent companys separate books,the investment in subsid

12、iary preferred stock is adjusted to its book value at acquisition and the parents additional paid-in capital is charged or credited for the difference between the cost of the investment and its underlying book value.a The investment in preferred stock is accounted for on the basis of its book value,

13、and not on the basis of the cost or equity methods.2009 Pearson Education,Inc.publishing as Prentice Hall 100 b Without this adjustment on the parent company books,parent company net income and stockholders equity would not equal consolidated net income and stockholders equity.c If the constructive

14、retirement is not recorded on the parents books,the investment is maintained on a cost basis.In this case,a working paper adjustment to additional paid-in capital is required for each year the statements are consolidated.The consolidated financial statements are not affected by the parent companys a

15、ccounting for its investment.PARENT COMPANY AND CONSOLIDATED EARNINGS PER SHARE(Illustration 10-2)A Parent company and consolidated earnings per share are identical.Basic earnings per share are always identical when the parent company uses the complete equity method.1 When a subsidiary has no potent

16、ially dilutive securities,the procedures for computing consolidated EPS are the same as for separate entities.2 When a subsidiary has potentially dilutive securities,the potential dilution must be considered in computing the parents diluted EPS.a If the subsidiarys potentially dilutive securities ar

17、e convertible into subsidiary common stock,the potential dilution is reflected in subsidiary EPS computations,which are then used in determining parent company EPS.b If the subsidiarys potentially dilutive securities are convertible into parent company common stock,they are treated as parent company

18、 dilutive securities and are included directly in computing the parent companys EPS.In this case subsidiary EPS computations are not used in parent company EPS computations.B Dilutive securities of the subsidiary convertible into subsidiary shares:1 The diluted earnings of the parent company are adj

19、usted to replace the parents equity in subsidiary realized income with the parents share of the diluted earnings of the subsidiary.a The“parents equity in subsidiary realized income”is the parents percentage interest in the reported income of the subsidiary adjusted 2009 Pearson Education,Inc.publis

20、hing as Prentice Hall 101 for the effects of intercompany profits from upstream sales and constructive gains or losses of the subsidiary.(1)The amortization of cost/book value differentials,unrealized profits for downstream sales,and constructive gains and losses assigned to the parent company that

21、are excluded from the computation of income from subsidiary are not considered in the computation of the parents equity in subsidiary realized income.This is because these items do not affect the subsidiarys equity.b This computation of the subsidiarys EPS is made only for the purpose of calculating

22、 the parents EPS and it may not be the same as one prepared by the subsidiary for its own external reporting.(1)Subsidiary EPS computations are based on subsidiary realized income.For this purpose,unrealized profits of the subsidiary are eliminated and constructive gains and losses of the subsidiary

23、 are included.c The“parents equity in the subsidiarys diluted earnings”is computed by multiplying the subsidiary shares owned by the parent by the subsidiarys diluted EPS.C Dilutive securities of a subsidiary convertible into parent company shares:1 The parent company common shares are adjusted when

24、 potentially dilutive securities of the subsidiary are convertible into parent company stock.2 Income attributable to the potentially dilutive securities of the subsidiary under the“if converted”method is added to the parents earnings in calculating the parents diluted earnings.ACCOUNTING FOR INCOME

25、 TAXES OF CONSOLIDATED ENTITIES A A consolidated entity may elect to file a consolidated tax return if it is classified as an affiliated group under 1501 through 1504 of the IRC.1 An affiliated group exists when a common parent corporation owns at least 80%of the voting power of all classes of stock

26、 and 80%or more of the total value of all outstanding stock of each of the includable corporations.The common parent must meet the 80%requirements directly for at least one includable corporation.2009 Pearson Education,Inc.publishing as Prentice Hall 102 2 All consolidated entities that are not an a

27、ffiliated group must file separate returns for each affiliated company.B Consolidated tax returns of consolidated entities:1 Intercompany dividends are excluded from taxable income.This 100%exclusion of dividends from members of the affiliated group applies even if the companies file separate tax re

28、turns.2 Losses of one affiliate can be offset against income of other affiliates.Loss carryforwards existing at the time an affiliate is acquired can be offset only against taxable income of that affiliate.3 Intercompany profits and losses are deferred until realized.4 Each subsidiary included in th

29、e consolidated tax return must use the parents tax year.C Separate tax returns of consolidated entities:1 Dividends from members of the same affiliated group are 100%excludable from income even when separate returns are filed.2 80%of the dividends received from domestic corporations that are 20%to 8

30、0%owned are excludable and 70%of the dividends received from domestic corporations that are less than 20%owned are excludable from taxable income.3 Income taxes are payable on unrealized intercompany profits,but taxes otherwise payable are reduced for unrealized intercompany losses.INCOME TAX ALLOCA

31、TION(Illustration 10-3)A Under FAS 109,the objectives of accounting for income taxes are:1 To recognize the amount of taxes payable or refundable for the current year,and 2 To recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the fin

32、ancial statements or tax returns.B Events that have future tax consequences are temporary differences.2009 Pearson Education,Inc.publishing as Prentice Hall 103 1 Some accounting/income tax differences are temporary differences when separate tax returns are filed,but not when consolidated tax return

33、s are filed.a Unrealized and constructive gains and losses from intercompany transactions are temporary differences when separate tax returns are filed.This is because the gains and losses are not included in accounting income until realized;but the individual companies are taxed on the income inclu

34、ded in their separate statements.b Unrealized and constructive gains and losses from intercompany transactions are not temporary differences when consolidated returns are filed.This is because the gains and losses are deferred until realized in both the consolidation working papers and the consolida

35、ted tax return.2 Other accounting/income tax differences are temporary differences when either separate or consolidated tax returns are filed.a Since 20%of the dividends received from an affiliate that is not a member of the affiliated group is taxable,undistributed income,future dividends,creates a

36、 temporary difference in both separate and consolidated tax returns.3 Some accounting/income tax differences are not temporary differences.a Goodwill amortization,when generated from a non-taxable combination or prior to the 1993 change in the tax rules,is not deductible for tax purposes in either s

37、eparate or consolidated tax returns.C Temporary differences 1 Temporary differences from undistributed earnings of a subsidiary (or equity investee):a Investors pay income taxes on dividends currently received(distributed income)from equity investees and subsidiaries that are not members of the affi

38、liated group.b The investor provides for deferred income taxes on its share of the investees undistributed income(i.e.,the investees net income less dividends).2 Temporary differences from unrealized gains and losses from intercompany transactions in separate tax returns:2009 Pearson Education,Inc.p

39、ublishing as Prentice Hall 104 a The selling entity includes the gain or loss from the intercompany sale in its separate tax return and pays the tax or receives the tax benefit currently.b The tax effect of the temporary difference from the unrealized gain or loss is included in measuring the income

40、 tax expense of the selling affiliate.Under this approach:(1)Intercompany profits are eliminated on a gross basis.(2)Consolidated income tax expense is equal to the combined income tax expense of the consolidated entities.D When consolidated tax returns are filed,the tax liability is allocated among

41、 the affiliated companies.The four methods currently used to allocate income taxes among affiliates are:1 Separate return method-each subsidiary computes its income taxes as if it were filing a separate return 2 Agreement method-the tax expense is allocated by agreement between the parent and subsid

42、iaries 3 With-or-without method-the income tax provision is computed for the group with and without the pretax income of the subsidiary and the subsidiarys income tax expense is the difference 4 Percentage allocation method-the consolidated income tax expense is allocated to a subsidiary on the basi

43、s of its pretax income as a percentage of consolidated pretax income This method is used in the textbook.BUSINESS COMBINATIONS(Illustration 10-4)A Business combinations may be taxable or tax free under the IRC.Any of the following combinations is possible.1 In a taxable purchase business combination

44、,the assets and liabilities of the acquired corporation are revalued to reflect the acquisition values for both accounting and tax purposes.2 In a tax-free purchase business combination,the assets and liabilities are carried forward at their book values for tax purposes,but are revalued for accounti

45、ng purposes.2009 Pearson Education,Inc.publishing as Prentice Hall 105 B When assets and liabilities are revalued for tax purposes,the seller recognizes gain or loss equal to the fair value of the consideration received minus the tax bases of the assets or stock sold.C Accounting for a taxable purch

46、ase business combination:1 Assets and liabilities acquired are recorded at their gross amount.2 Since the tax basis and the book basis are the same,no deferred tax assets or liabilities are recorded.3 Goodwill is tax deductible for purchases after August 1993 based on the Revenue Reconciliation Act

47、of 1993(section 197).The amortization period for tax purposes is 15 years.Goodwill is not amortized for financial reporting purposes under FASB Statement 142.D Accounting for a tax-free purchase business combination:1 Assets and liabilities are recorded at their gross amount.2 The difference between

48、 the tax basis(book values)and the assigned values of assets and liabilities acquired times the tax rate is recorded as a deferred tax liability or deferred tax asset.Goodwill is excludedno deferred tax liability is set up for goodwill.3 Goodwill is not tax deductible.FINANCIAL STATEMENT DISCLOSURES

49、 FOR INCOME TAXES A Deferred tax assets or liabilities are disclosed on the balance sheet in two categories,a current and a non-current amount based on the related asset or liability.1 If the deferred item is not related to a specific item,its classification depends on the reversal date of the tempo

50、rary difference.B Significant components of income tax expense or benefit should be disclosed on the income statement,or in the notes to the financial statements.1 Amounts allocated to continuing operations,discontinued operations,extraordinary items,cumulative effect type items,and prior-period adj