Accounting Excel Project

$42.00

Description

Computer
Project

Alternative
Investment Methods, Goodwill Impairment, and Consolidated Financial Statements

In
this project, you are to provide an analysis of alternative accounting methods
for controlling interest investments and subsequent effects on consolidated
reporting. The project requires the use of a computer and a spreadsheet
software package (e.g., Microsoft Excel, etc.). The use of these tools allows
you to assess the sensitivity of alternative accounting methods on consolidated
financial reporting without preparing several similar worksheets by hand. Also,
by modeling a worksheet process, you can develop a better understanding of
accounting for combined reporting entities.

Page 142

Consolidated
Worksheet Preparation

You
will be creating and entering formulas to complete four worksheets. The first
objective is to demonstrate the effect of different methods of accounting for
the investments (equity, initial value, and partial equity) on the parent
company’s trial balance and on the consolidated worksheet subsequent to
acquisition. The second objective is to show the effect on consolidated
balances and key financial ratios of recognizing a goodwill impairment loss.

The
project requires preparation of the following four separate worksheets:

  1. Consolidated
    information worksheet (follows).
  2. Equity
    method consolidation worksheet.
  3. Initial
    value method consolidation worksheet.
  4. Partial
    equity method consolidation worksheet.

If
your spreadsheet package has multiple worksheet capabilities (e.g., Excel), you
can use separate worksheets; otherwise, each of the four worksheets can reside
in a separate area of a single spreadsheet.

In
formulating your solution, each worksheet should link directly to the first
worksheet.
Also, feel free to create
supplemental schedules to enhance the capabilities of your worksheet.

Project
Scenario

Pecos
Company acquired 100 percent of Suaro’s outstanding stock for $1,450,000 cash
on January 1, 2012, when Suaro had the following balance sheet:

Assets

Liabilities and Equity

Cash

$
37,000

Liabilities

$(422,000)

Receivables

82,000

Inventory

149,000

Common
stock

(350,000)

Land

90,000

Retained
earnings

(126,000)

Equipment
(net)

225,000

Software

315,000

Total
assets

$898,000

Total
liabilities and equity

$(898,000)

At
the acquisition date, the fair values of each identifiable asset and liability
that differed from book value were as follows:

Land

$
80,000

Brand
name

60,000

(indefinite
life—unrecognized on Suaro’s books)

Software

415,000

(2-year
estimated useful life)

In-process
R&D

300,000

Additional
Information

  • Although
    at acquisition date Pecos expected future benefits from Suaro’s in-process
    research and development (R&D), by the end of 2012, it became clear
    that the research project was a failure with no future economic benefits.
  • During
    2012, Suaro earns $75,000 and pays no dividends.
  • Selected
    amounts from Pecos and Suaro’s separate financial statements at December
    31, 2013, are presented in the consolidated information worksheet. All
    consolidated worksheets are to be prepared as of December 31, 2013, two
    years subsequent to acquisition.
  • Pecos’s
    January 1, 2013, Retained Earnings balance—before any effect from Suaro’s
    2012 income—is $(930,000) (credit balance).
  • Pecos
    has 500,000 common shares outstanding for EPS calculations and reported
    $2,943,100 for consolidated assets at the beginning of the period.

Page 143

Following
is the consolidated information worksheet.

A

B

C

D

1

December
31, 2013, trial balances

2

3

Pecos

Suaro

4

Revenues

($1,052,000)

($427,000)

5

Operating
expenses

$
821,000

$262,000

6

Goodwill
impairment loss

?

7

Income
of Suaro

?

8

Net
income

?

($165,000)

9

10

Retained
earnings—Pecos 1/1/13

?

11

Retained
earnings—Suaro 1/1/13

($201,000)

12

Net
income (above)

?

($165,000)

13

Dividends
paid

$
200,000

$
35,000

14

Retained
earnings 12/31/13

?

($331,000)

15

16

Cash

$
195,000

$
95,000

17

Receivables

$
247,000

$143,000

18

Inventory

$
415,000

$197,000

19

Investment
in Suaro

?

20

21

22

23

Land

$
341,000

$
85,000

24

Equipment
(net)

$
240,100

$100,000

25

Software

$312,000

26

Other
intangibles

$
145,000

27

Goodwill

28

Total
assets

?

$932,000

29

30

Liabilities

($1,537,100)

($251,000)

31

Common
stock

($
500,000)

($350,000)

32

Retained
earnings (above)

?

($331,000)

33

Total
liabilities and equity

?

($932,000)

34

35

Fair
value allocation schedule

36

Price
paid

$1,450,000

37

Book
value

$
476,000

38

Excess
initial value

$
974,000

Amortizations

39

to land

($
10,000)

2012

2013

40

to brand
name

$
60,000

?

?

41

to
software

$
100,000

?

?

42

to
IPR&D

$
300,000

?

?

43

to
goodwill

$
524,000

?

?

44

45

Suaro’s
RE changes

Income

Dividends

46

2012

$
75,000

$
0

47

2013

$
165,000

$
35,000

Page 144

Project
Requirements

Complete
the four worksheets as follows:

  1. Input
    the consolidated information worksheet provided and complete the
    fair-value allocation schedule by computing the excess amortizations for
    2012 and 2013.
  2. Using
    separate worksheets, prepare Pecos’s trial balances for each of the
    indicated accounting methods (equity, initial value, and partial equity). Use
    only formulas for the Investment in Suaro, the Income of Suaro, and
    Retained Earnings accounts.
  3. Using
    references to other cells only (either from the consolidated information
    worksheet or from the separate method sheets),
    prepare for each of the three consolidation worksheets:
    • Adjustments
      and eliminations.
      • Consolidated
        balances.
    1. Calculate
      and present the effects of a 2013 total goodwill impairment loss on the
      following ratios for the consolidated entity:
        • Earnings
          per share (EPS).
          • Return
            on assets.
            • Return
              on equity.
              • Debt
                to equity.

              Your worksheets should have the capability to adjust
              immediately for the possibility that all acquisition goodwill can be considered
              impaired in 2013.

              1. Prepare
                a word-processed report that describes and discusses the following
                worksheet results:
              1. The
                effects of alternative investment accounting methods on the parent’s
                trial balances and the final consolidation figures.
              2. The
                relation between consolidated retained earnings and the parent’s retained
                earnings under each of the three (equity, initial value, partial equity)
                investment accounting methods.
              3. The
                effect on EPS, return on assets, return on equity, and debt-to-equity
                ratios of the recognition that all acquisition-related goodwill is
                considered impaired in 2013.

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