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Wk41stResponseDiscussionPost.docxWk4 Discussion Response:
Instructions: Respond to the discussion post below. 3 substantial paragraphs, and 3 peer reviewed authoritative sources, not including the textbook, cited properly in APA format.
A parent company Net Income and Retained Earnings account balance will be agreed because the subsidiary firms its going to make profit and these earnings must be incorporated on the parent’s firms when it is based on the capital method. During the consolidation process accounts like additional paid in capital, common stock and retained earnings are eliminated for the subsidiary firm.
According with Doupnik & Schaefer 2017 several important guidance must be followed for registry a consolidated total as is showed bellow:
· First step is adjusted liabilities and asset accounts to show their fair value at the acquisition date reflecting originating.
· Second, on the consolidation process it should be take under consideration changes in income account balance should be considered because of amortization for example.
· They need to separate their internal business for the external business, for example in the case when parent or subsidiary take money each other for pay in the future ( bill of exchange or account payable) this transaction is between both, it is not shown on their public consolidated Totals (Management report 2019).
When is search guidance on Institutions who work for establish bylaws and rules in accounting is founded that the use of equity method should be present when born an investment regarding stock between companies (APB opinion #24 1972). As its seem before the investor can see his participations when invest in more than 50 % for the parent entity. In the case of they want to growth together and merge their assets, liabilities and equity simplified a lot of work because their different assets will be one at the end. This action help to keep the focus and increase proficiency.
References
APB OPINION NO. 24: ACCOUNTING FOR INCOME TAXES- Investments in Common Stock Accounted for by the Equity Method (Other than Subsidiaries and Corporate Joint Ventures). (1972). Journal of Accountancy, 134(1), 67–69.
Hoyle, J.B. , Schaefer T. F & Doupnik ,T. S (2017) Advanced Accounting 13th edition Mcgraw- Hill Education
MANAGEMENT REPORT: Improvements Needed in Controls over the Processes Used to Prepare the U.S. Consolidate Financial Statements. (2019). GAO Reports, 1–22. Retrieved from:
