The problem makes it clear that “Merick is unlikely to have control over Lisam”, so I implied the consolidation would be valued with the equity method. However, the explanation calculates the total consolidated shareholder’s equity as Merick’s equity + the non-controlling interest for Lisam. I thought minority interest was part of the acquisition method, not the equity method. Do I have this wrong, or is the right answer to value via acquistion method? The explanation does not make it clear. Merick purchased 50% of Lisam and does not have control.
your correct in your assumption, however, the question asks to use the consolidation method, as opposed to the proper method (equity)
Can you point out where they ask to use consolidation as opposed to equity? The entire question says “If Merick prepared a consolidated balance sheet on the date of acquisition the total shareholders’ equity ($) under U.S. GAAP would be closest to:” Thanks.
“consolidated balance sheet” as opposed to proper classsification
I don’t think thats accurate. Consolidated balance sheet means nothing other than it consolidates all of its subsidiaries.
I got this wrong. I think its a bad question. I think Northeastern is right though. When they ask for “consolidated” I think they imply that you use acquisition method to consolidate on financial staements (which would be an incorrect way to account for it). I think that is the rationale for the question, but it stinks.
That is completely godawful. How can they ask such a question??? its like asking “On earth without gravity, if you were falling out of your window, how fast would you travel by the time you reached the 5th floor from the 27th” Doesnt GAAP require the equity method?? Consolidated statement just means consolidated, as in accordance with applicable rules! It doesnt mean “using the consolidation method incorrectly”!!! ugh! this question kicked my ass.
I haven’t personally read the question, but if it is exactly as described in this thread, its fucking wrong, period. I work in the industry and “consolidated balance sheet” does NOT mean you use consolidation method for all investments, this is just fucking stupid.