FUNDAMENTALS OF ADVANCED ACCOUNTING >I
6th Edition
ISBN: 9781307007350
Author: Hoyle
Publisher: MCG/CREATE
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Chapter 1, Problem 5DYS
1.
To determine
Explain the protective non-controlling rights.
2.
To determine
Explain the substantive participating non-controlling rights.
3.
To determine
Explain the non-controlling rights which overcome the presumption that all majority-owned investees should be consolidated.
4.
To determine
Explain issues in determining whether Zee should consolidate Bee or report its investment in Bee under the equity method.
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RESEARCH CASE—NONCONTROLLING SHAREHOLDER RIGHTS
Consolidated financial reporting is appropriate when one entity has a controlling financial interest in another entity. The usual condition for a controlling financial interest is ownership of a majority voting interest. But in some circumstances, control does not rest with the majority owner—especially when noncontrolling owners are contractually provided with approval or veto rights that can restrict the actions of the majority owner. In these cases, the majority owner employs the equity method rather than consolidation.
Required
Address the following by searching the FASB ASC Topic 810 on consolidation.
What are protective noncontrolling rights?
What are substantive participating noncontrolling rights?
What noncontrolling rights overcome the presumption that all majority-owned investees should be consolidated?
Zee Company buys 60 percent of the voting stock of Bee Company with the remaining 40 percent noncontrolling interest held by…
Consolidated financial reporting is appropriate when one entity has a controlling financial interest in another entity. The usual condition for a controlling financial interest is ownership of a majority voting interest. But in some circumstances, control does not rest with the majority owner-especially, when noncontrolling owners are contractually provided with approval or veto rights that can restrict the actions of the majority owner. In these cases, the majority owner employs the equity method rather than consolidation.
Required
Address the following by searching the FASB ASC Topic 810 on consolidation.
What are protective noncontrolling rights?
What are substantive participating noncontrolling rights?
What noncontrolling rights overcome the presumption that all majority-owned investees should be consolidated?
Zee Company buys 60 percent of the voting stock of Bee Company with the remaining 40 percent noncontrolling interest held by Bee's former owners, who negotiated the…
What is a controlling financial interest? How did the FASB define this in FIN 46(R)? What are typical difficulties in ascertaining whether control exists where perhaps no voting interest is actually maintained? Please choose a recent business combination and address what you feel their motives were for the combination. Do you see any problems with their decision to combine?
Chapter 1 Solutions
FUNDAMENTALS OF ADVANCED ACCOUNTING >I
Ch. 1 - A company acquires a rather large investment in...Ch. 1 - Prob. 2QCh. 1 - Why does the equity method record dividends from...Ch. 1 - Prob. 4QCh. 1 - Smith. Inc., has maintained an ownership interest...Ch. 1 - Prob. 6QCh. 1 - Because of the acquisition of additional investee...Ch. 1 - Prob. 8QCh. 1 - Prob. 9QCh. 1 - Prob. 10Q
Ch. 1 - In a stock acquisition accounted for by the equity...Ch. 1 - Prob. 12QCh. 1 - What is the difference between downstream and...Ch. 1 - Prob. 14QCh. 1 - Prob. 15QCh. 1 - What is the fair-value option for reporting equity...Ch. 1 - When an investor uses the equity method to account...Ch. 1 - Which of the following does not indicate an...Ch. 1 - Prob. 3PCh. 1 - Under fair-value accounting for an equity...Ch. 1 - When an equity method investment account is...Ch. 1 - Prob. 6PCh. 1 - Prob. 7PCh. 1 - Prob. 8PCh. 1 - Prob. 9PCh. 1 - Prob. 10PCh. 1 - Prob. 11PCh. 1 - Prob. 12PCh. 1 - Prob. 13PCh. 1 - Prob. 14PCh. 1 - Prob. 15PCh. 1 - Prob. 16PCh. 1 - Prob. 17PCh. 1 - Prob. 18PCh. 1 - Prob. 19PCh. 1 - Prob. 20PCh. 1 - Prob. 21PCh. 1 - Prob. 22PCh. 1 - Prob. 23PCh. 1 - Prob. 24PCh. 1 - Prob. 25PCh. 1 - Prob. 26PCh. 1 - Prob. 27PCh. 1 - Prob. 28PCh. 1 - Prob. 29PCh. 1 - Prob. 30PCh. 1 - Prob. 31PCh. 1 - Prob. 32PCh. 1 - Prob. 33PCh. 1 - Prob. 1DYSCh. 1 - Access The Coca-Cola Companys SEC 10-K filing at...Ch. 1 - Prob. 4DYSCh. 1 - Prob. 5DYS
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- Consolidated financial statements are required in which ofthe following situations?a. Only when a company can exert significant influenceover another company.b. Only when a company has a passive investment inanother company.c. Only when a parent company can exercise control overits subsidiary.d. None of the above.arrow_forwardIn Chapter 3 of our text, we learn about the concept of “control”, as it relates to consolidations. Specifically, control refers to the situation where a parent company owns a controlling financial interest in another company, whether that company is incorporated or not (such as a trust or partnership). Consolidation of entities that are not majority-owned is opposed by some companies, particularly biotechnology and pharmaceutical concerns, whose financial strength could be hurt by reporting consolidated financials. Accounting professionals have argued that some firms deliberately avoid consolidating results by owning less than 50% of the voting stock in an entity, even though they effectively control it by hiring and firing management. In what instances would a company want to consolidate an entity of which the company owns less than 50%? Discuss ways that a company can control another with less than majority ownership.arrow_forward'Control' exists when the parent owns less than half of the voting power of an entity when: Select one alternative: the remaining investors act in unison to outvote the parent. other shareholders actively cooperate when exercising their votes. all other shareholdings are widely dispersed. other shareholders in the entity are passive investors.arrow_forward
- Which of the following is closest to IFRS 3 Business Combinations definition of control? A company is deemed to have control over another only when it owns a majority of the voting shares of another company. B. A company is deemed to have control when it can elect a majority of the Board members of another company. C. Control is the ability to direct the activities of a company that most significantly affect the investor's returns. D. Control exists only when a company has the continuing power to determine the operating and financing policies of another company and attempts to exercise such powers.arrow_forwardIn a classroom discussion of the display, in a consolidated balance sheet, of the minority interest of preferred stockholders in the net assets of a subsidiary, student Ross suggested that such a minority interest differs from the minority interest of common stockholders, and thus possibly warrants display in the “mezzanine” section between liabilities and stockholders’ equity. Student Kerry disagrees; she maintains that the term minority applies to preferred stockholders as well as common stockholders other than the parent company; both minority interests are part of consolidated stockholders’ equity.Instructions Do you support the position of student Ross or of student Kerry? Explain.arrow_forwardWhich of the following statements is consistent with the principle of control as defined by IFRS 10 Consolidated Financial Statements? a. The investor must be exposed to a return from the investee. b. The investor has the ability to use its power over the investee to affect the amount of the returns from the investee. c. An investor yet to direct the relevant activities of an investee has no power over the investee. d. An investor cannot have control over an investee if another investor has existing rights to participate in the direction of the relevant activities.arrow_forward
- Identify the option that you would consider to be among the disadvantages of forming a limited company.a) Legal control and stringent requirements that have to be compliedb) The need to entrust control and decisions to a fewc) Restrictions on return of capital if in excess of company’s requirementsd) The ease with which the share of ownership could be disposed of Select one: A. b, c & d B. c & d C. a, b & c D. a, c & darrow_forwardChoose the correct. The noncontrolling interest represents an outside ownership in a subsidiary that is not attributable to the parent company. Where in the consolidated balance sheet is this outside ownership interest recognized?a. In the liability section.b. In a mezzanine section between liabilities and owners’ equity.c. In the owners’ equity section.d. The noncontrolling interest is not recognized in the consolidated balance sheet.arrow_forward1.) When share options issued to employees are exercised, the entity shall: a. recognize a loss for the unamortized balance b. make a transfer among equity components c. recognize a gain for the unamortized balance d. do nothing 2.) A share-based payment transaction with cash alternative whereby the right of choice of settlement is retained by the entity is accounted for as: a. either cash-settled or equity-settled, but not both b. equity-settled c. partly cash-settled and equity-settled d. cash-settled 3.) A share-based payment transaction with cash alternative whereby the right of choice of settlement is given to the employee is accounted for as: a. cash-settled b. either cash-settled or equity-settled, but not both c. partly cash-settled and equity-settled d. equity-settledarrow_forward
- Answer with true or false. No need explanation. 1. Indirect cost incurred by the entity in business combination is recognized as expense. 2. PFRS 10 defines control as the power to govern the financial and operating policies as to obtain benefits from its activities. 3. An investor has no power over the investee even if the investor holds the majority of the voting rights if those rights are not substantive. 4. A subsidiary should be excluded from the consolidated statements if the subsidiary operates under governmentally impose uncertainty.arrow_forwardChoose the correct.Which of the following does not indicate an investor company’s ability to significantly influence an investee?a. Material intra-entity transactions.b. The investor owns 30 percent of the investee but another owner holds the remaining 70 percent.c. Interchange of personnel.d. Technological dependency.arrow_forwardS1: A subsidiary is not excluded from consolidation simply because the investor isa venture capital organization, mutual fund, unit trust or similar entity. S2:Influence is the power to govern the financial and operating polices of an entityso as to obtain benefits from its activities. A. Only S2 is correctB. Both statements are correctC. Both statements are incorrectD. Only S1 is correctarrow_forward
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