Consolidating business operations
Regular dividends are recorded as dividend income whenever they are declared.Impairment loss : An impairment loss occurs when there is a decline in the value of the investment other than temporary.
The parent company needs to issue consolidated financial statements at the end of the year to reflect this relationship.Treatment of Purchase Differentials: At the time of purchase, purchase differentials arise from the difference between the cost of the investment and the book value of the underlying assets.Purchase differentials have two components: Purchase differentials need to be amortized over their useful life; however, new accounting guidance states that goodwill is not amortized or reduced until it is permanently impaired, or the underlying asset is sold.The result is one set of financial statements that reflect the financial results of the consolidated entity. horizontal integration:is the combination of firms in the same business lines and markets. vertical integration: is the combination of firms with operations in different but successive stages of production or distribution or both. Conglomeration: is the combination of firms with unrelated and diverse products or services functions, or both.The business environment is in a constant state of flux.
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The company does not need any entries to adjust this account balance unless the investment is considered impaired or there are liquidating dividends, both of which reduce the investment account.