1.

What is the appropriate title for a company that is organized for the sole
purpose of holding shares of stock of subsidiary companies?
__Holding corporation may be formed solely for the purpose of holding the
stocks of & supervising the operations of other operations.
2. For expansion purposes, why is the acquisition of stocks preferable over the
acquisition of net assets whether under the merger from or consolidation
form?
__Acquisition of stocks are preferable over the acquisition of net assets
because of the simpler to achieve control with lesser legal and processing
costs to be incurred, assets of the parent company are protected from
possible attachment by subsidiary creditors, lesser amount of investment
involved since only majority shares are needed to achieve control instead of
acquiring all the assets of the acquired company.
3. Why are consolidated financial statements of affiliated companies prepared?
4. Define the ff terms:
__- Control, presumed to exist when the parent acquires more than 50%
ownership over the subsidiary.
- Power, having substantive rights.
- Substantive rights rights to direct investees relevant activities such as
buying and selling, financing, investing, research and development, defining
financial structure, among others.
- participating rights are sometimes direct like voting rights, rights to appoint,
assign, remove, decide about remuneration of key management officials,
among others
- Protective rights
-Consolidation
-Subsidiary who is the acquire/ investee.
-Parent who is the acquirer/investor that obtains control over the subsidiary
-Affiliates a parent and its subsidiaries may still exist as a separate legal
entities and maintain separate acctg records.
-Non-controlling interest, formerly called minority interest. It is the portion of
the profit or loss and subsidiary equity that are owned by the subsidiary
shareholders other than the parent company acquires only partial interest
over the subsidiary.
5. What is the presumption when a company owns 20% to 50% shares of stock
of another company. How are the constituent parties are called? What
accounting method is appropriate?
___It States that an investment of 20% or more of the voting stock of the
investee, whether directly or indirectly, should lead to a presumption that in
the absence of evidence to the contrary, an investor has the ability to

exercise significant influence over an investee.

6. What is the presumption when a company owns more than 50% shares of
stock of another company and how are the constituent parties called? What
accounting method is appropriate?
__Control is presumed to exist when the parent acquires more than 50%
ownership over the subsidiary.
7. Why must the investment account be eliminated when consolidating
subsidiary companys financial statements with the parent companys FS?
__Investment account should be eliminated otherwise there will be
duplication. Removing the investment account requires the removal of the
reciprocal accounts in the books of the subsidiary which are the Shareholders
Equity accounts.
8. Is there a difference between the SHE of the parent company and the
consolidated SHE?
__The SHE of the parent appears in the consolidated shareholders equity
while the shareholders equity of the subsidiary is eliminated
9. How is the implied value of the firm determined? What is the implication in
the valuation of the firm when the consideration is higher than the value of
the subsidiary interest acquired? And when the subsidiary interest acquired is
higher than value of the consideration given?
__If the consideration is more than the FV of the subsidiary interest acquired,
goodwill from the business combination should be recognized. Goodwill is
recognized both for the parent & the other subsidiary shareholders (in case of
partial investment). Implied value of the subsidiary may be based on the
consideration given by the parent. Appropriate value of the subsidiary
however is based on FMV of its stock.
While when the subsidiary interest is greater than the consideration given by
the parent, the excess is recognized as a gain. The appropriate value of the
firm follows the FV of the subsidiary interest.
10.What is the acctg treatment, in the parents separate FS, for investments in
the common stock of subsidiary included in the consolidation FS?

11.Explain why the identifiable assets and liabilities should be consolidated in

full regardless of the percent of ownership of the parent company over the
subsidiarys net assets?
__The assets & liabilities of the parent and its subsidiary are combined, item
by item, at 100% even if ownership interest of the parent is not 100%

12.What is the rule in consolidating the SHE of a parent company and a partially
owned subsidiary company? Will the subsidiarys SHE be always totally
eliminated?
__The Shareholderss Equity of the parent appears in the consolidated
Shareholders Equity while the Shareholders equity of the subsidiary for the
parents share is eliminated. Not all the Shareholders equity of the subsidiary
are eliminated, non-controlling interest is retained in the consolidated
Shareholders equity

13.Give the rules in determining the share of the non-controlling interest for the
ff:
Asset revaluation, The share of the other subsidiary stockholders called noncontrolling interest are determined and that the plant assets must be
revalued at the total amount and shared by both parent & NCI.
goodwill, The excess of the implied value of the firm against subsidiary
interest at FV is the total goodwill to be shared by parent & NCI.
Gain on Purchase, NCI does not share in the gain. Gain is only recognized for
the parent.
14.If assets have FV different from their BV what is the benchmark treatment
especially when ownership interest of parent is not 100%? Discuss in the light
of the proprietary theory and economic entity theory.
__Assets should always be valued at Fair Value.
Under the Economic entity theory, total goodwill is recognized even if ownership
interest of parent is not 100%. Its Total Asset revaluation is for both parent and NCI.
While the proprietary theory, only the parents share in the goodwill from
combination should be recognized. Gain from bargain purchase if only for controlling
interest