On the date of acquisition, subsidiary revenues and expenses are omitted from consolidation totals but assets and liabilities are included at fair value. Any excess payment made by the parent in purchasing the subsidiary is reported as goodwill. In subsequent consolidations, what accounting is made of the subsidiary’s revenues, expenses, assets, and liabilities? Answer: For subsequent balance sheets created after a business combination is formed, the book value of each of the subsidiary’s assets and liabilities is added to the book value of those same accounts within the parent’s financial records. However, the initial adjustments made at the date of acquisition to establish fair value must continue to be included because they represent a cost incurred by Giant when the $900,000 payment was made to acquire Tiny Company. Thus, in future consolidations of these two companies, the $320,000 adjustment recorded to the land account will be present as will the $210,000 portion of the payment assigned to the subsidiary’s trademark and the $270,000 goodwill balance. Those costs were not recognized by Tiny but were incurred by Giant at the time of acquisition and must be reflected in the ongoing reporting of those assets. Recognition of these subsequent adjustments creates one final concern. A trademark has a finite life.
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Thus, the $210,000 cost paid by the parent and attributed to this asset must be amortized over time. This additional expense is only recognized in the consolidation process since it relates to the purchase of Tiny and not to the operations of either company. Neither land nor goodwill has a finite life so amortization is not appropriate for those purchase price adjustments. As discussed previously, these assets are checked periodically for impairment of value. Subsequently consolidated income statements report the parent’s revenues and expenses plus subsidiary amounts but only those recognized since the acquisition. In addition, the amortization of acquisition cost adjustments, such as for the trademark, will be recognized within the consolidation as an expense.
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