Exercise Instructions
Keystone Assignment – Chapter 7: Investments in Subsidiaries (Special Issues)
Course: Advanced Accounting
Chapter: 7 – Special Issues in Accounting for an Investment in a Subsidiary
Assignment Title: Push-Down Accounting and Step Acquisitions
Length: 2–3 pages (written), plus 1 short journal entry exhibit (optional)
Format: APA 7th Edition
Due Date: by Sunday 8/17/2025 10:59pm CST
📘 Assignment Overview:
In this assignment, you will explore two real-world issues in parent-subsidiary accounting: push-down accounting and step acquisitions. These topics illustrate how changes in ownership levels or acquisition methods can affect the reporting entity and its financial statements.
🎯 Learning Objectives (LO):
- LO1: Describe and apply push-down accounting rules
- LO2: Explain the accounting treatment for step acquisitions
- LO3: Analyze how changes in control affect consolidated financial statements
- LO4: Apply ASC 805 (Business Combinations) in context
🧾 Instructions:
Part 1 – Concept Explanation (1–1.5 pages)
In your own words:
- What is push-down accounting and when is it required or allowed?
- What is a step acquisition? How does the parent company account for its investment before and after gaining control?
Part 2 – Mini Scenario & Response (1 page)
On January 1, 2023, Vega Corp. owned 40% of Luna Inc. and accounted for it using the equity method. On December 31, 2023, Vega acquired an additional 45% for $500,000, gaining control. The fair value of Luna at that time was $1,100,000. Luna’s book value was $950,000, with $60,000 of the excess attributable to undervalued equipment (remaining life: 4 years).
Answer the following:
- What journal entry (summary format) should Vega make on December 31, 2023, to recognize the step acquisition and apply the acquisition method? (You may write in paragraph form if you prefer.)
- Should Luna apply push-down accounting to its own books? Why or why not?
Part 3 – Reflection (Half-page)
- What challenges or ethical considerations might arise in applying push-down accounting or recognizing goodwill in step acquisitions?
✅ Grading Rubric (30 points total):
Criteria | Points |
|---|---|
Concept Explanations (Accuracy & Clarity) | 10 |
Scenario Analysis & Journal Explanation | 10 |
Ethical Reflection & APA Format | 5 |
Grammar, Structure, and Effort | 5 |