Consolidating financial statements eliminations
That would explain part of the purchase differential.
Assume that all other identifiable assets and liabilities are carried at fair value.
Control is ordinarily established once ownership jumps over 50%, but management contracts and other similar arrangements may allow control to occur at other levels.
For example, the 5,000 Land account reflects the parent’s land plus the fair value of the subsidiary’s land (,000 0,000).
This asset reflects ownership of all of the stock of Sledge and that Premier paid 0,000 for this investment.
Importantly, the 0,000 flowed from Premier to the former owners of Sledge (not directly to Sledge).
Assume Premier Tools Company bought 100% of the stock of Sledge Hammer Company.
Sledge (now a “subsidiary” of Premier the “parent”) will continue to operate and maintain its own legal existence. Even though it is a separate legal entity, it is viewed by accountants as part of a larger “economic entity.” The intertwining of ownership means that Parent and Sub are “one” as it relates to economic performance and outcomes.
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