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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 (Microsoft Excel?, Lotus 123?, etc.). The use of these tools allows assessment of the sensitivity of alternative accounting methods on consolidated financial reporting without the necessity of preparing several similar worksheets by hand. Also, by modeling a worksheet process, a better understanding of accounting for combined reporting entities can result.;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, cost, 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 (provided below).;2. Equity method consolidation worksheet.;3. Cost method consolidation worksheet.;4. Partial equity method consolidation worksheet.;If your spreadsheet package has multiple worksheet capabilities (e.g., Excel), separate worksheets can be used, 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, 2002, when Suaro had the following balance sheet;Assets;I-P;Assets;Cash $37,000;Receivables $82,000;Inventory $149,000;Land $90,000;Equipment (net) $225,000;Software $315,000;Total assets $898,000;Liability & Equity;Liabilities ($422,000);Common stock ($350,000);Retained earnings ($126,000);Total liabity & equity ($898,000);rocess R&D 300,000 (no alternative use for these R&D assets);At the purchase date, the fair market values of each identifiable asset and liability that deferred from book value were as follows;Land $80,000;Brand name $60,000 (indifinte-life unrecognized on Suaro's book);Software $415,000 (2 year usefull life);In-process (R&D) $300,000 (no alternative use for these (R&D assets);Additional Information;? Pecos expects future benefits from the purchased in-process research and development (R&D) of Suaro. However, if the benefits are not realized, there is no alternative use for any of the purchased R&D assets.;? During 2002, Suaro earns $75,000 and pays no dividends.;? Selected amounts from Pecos and Suaro's separate financial statements at December 31, 2003, are presented in the Consolidation Information Worksheet. All consolidated worksheets are to be prepared as of December 31, 2003, two years subsequent to acquisition.;? Pecos' January 1, 2003, Retained Earnings balance-before any effect from Suaro's 2002 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.;Following is the consolidation information worksheet.;At the purchase date, the fair market values of each identifiable asset and liability that differed from book value were as follows;December 31, 2003 trial balances;Pecos Suaro;Revenues ($1,052,000) ($427,000);Operating Expenses $821,000 $262,000;Goodwill impairment loss ?;Income to Suaro ?;Net Income ? ($165,000);Retained earnings - Pecos 1/1/03 ?;Retained earnings - Suaro 1/1/03 ($201,000);Net income (above) ? ($165,000);Dividends paid $200,000 $35,000;Retained earnings 12/31/03 ? ($331,000);Cash $195,000 $95,000;Receivables $247,000 $143,000;Inventory $415,000 $197,000;Investment in Suaro ?;Land $341,000 $85,000;Equipment (net) $240,100 $100,000;Software $312,000;Other intangibles $145,000;Goodwill;Total assets ? $932,000;Liabilities ($1,537,100) ($251,000);Common stock ($500,000) ($350,000);Retained earnings (above) ? ($331,000);Total liabilities and equity ? ($932,000);Cost Allocation Schedule;Price Paid $1,450,000;Book Value $476,000;Excess Cost $974,000 Amortizations;to Land ($10,000) 2002 2003;to Brand Name $60,000? ?;to Software $100,000? ?;to IPR&D $300,000? ?;to Goodwill $524,000? ?;Suaro's RE Changes Income Dividends;2002 $75,000 $0;2003 $165,000 $35,000;Project Requirements;Complete the four worksheets as follows;1. Input the consolidated information worksheet provided and complete the cost allocation schedule by computing the excess amortizations for 2002 and 2003.;2. Using separate worksheets, prepare Pecos' trial balances for each of the indicated accounting methods (equity, cost, 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 consolidation information worksheet or from the separate method sheets), prepare for each of the three consolidating worksheets;? Adjustments and eliminations;? Consolidated balances;4. Calculate and present the effects of a 2003 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 2003.;Prepare a word-processed report that describes and discusses the following worksheet results;a. The effects of alternative investment accounting methods on the parent's trial balances and the final consolidation figures.;b. The relation between consolidated retained earnings and the parent's retained earnings under each of the three (equity, cost, partial equity) investment accounting methods.;c. 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 2003.;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 (Microsoft Excel®, Lotus 123®, etc.). The;use of these tools allows assessment of the sensitivity of alternative;accounting methods on consolidated financial reporting without the;necessity of preparing several similar worksheets by hand. Also, by;modeling a worksheet process, a better understanding of accounting for;combined reporting entities can result.;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, cost, 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 (provided below).;2. Equity method consolidation worksheet.;3. Cost method consolidation worksheet.;4. Partial equity method consolidation worksheet.;If your spreadsheet package has multiple worksheet capabilities (e.g.;Excel), separate worksheets can be used, 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, 2002, when Suaro had the following balance;sheet;Assets;I-P;Assets;Cash $37,000;Receivables $82,000;Inventory $149,000;Land $90,000;Equipment (net) $225,000;Software $315,000;Total assets $898,000;Liability & Equity;Liabilities ($422,000);Common stock ($350,000);Retained earnings ($126,000);Total liabity & equity ($898,000);rocess R&D 300,000 (no alternative use for these R&D assets);At the purchase date, the fair market values of each identifiable asset;and liability that deferred from book value were as follows;Land $80,000;Brand name $60,000 (indifinte-life unrecognized on Suaro's book);Software $415,000 (2 year usefull life);In-process (R&D) $300,000 (no alternative use for these (R&D assets);Additional Information;Pecos expects future benefits from the purchased in-process research and;development (R&D) of Suaro. However, if the benefits are not realized;there is no alternative use for any of the purchased R&D assets.;During 2002, Suaro earns $75,000 and pays no dividends.;Selected amounts from Pecos and Suaro???s separate financial statements;at December 31, 2003, are presented in the Consolidation Information;Worksheet. All consolidated worksheets are to be prepared as of December;31, 2003, two years subsequent to acquisition.;Pecos??? January 1, 2003, Retained Earnings balance???before any effect;from Suaro???s 2002 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.;Following is the consolidation information worksheet.;At the purchase date, the fair market values of each identifiable asset;and liability that differed from book value were as follows;December 31, 2003 trial balances;Pecos Suaro;Revenues ($1,052,000) ($427,000);Operating Expenses $821,000 $262,000;Goodwill impairment loss ?;Income to Suaro ?;Net Income ? ($165,000);Retained earnings - Pecos 1/1/03 ?;Retained earnings - Suaro 1/1/03;($201,000);Net income (above) ? ($165,000);Dividends paid $200,000 $35,000;Retained earnings 12/31/03 ? ($331,000);Cash $195,000 $95,000;Receivables $247,000 $143,000;Inventory $415,000 $197,000;Investment in Suaro ?;Land $341,000 $85,000;Equipment (net) $240,100 $100,000;Software;$312,000;Other intangibles $145,000;Goodwill;Total assets ? $932,000;Liabilities ($1,537,100) ($251,000);Common stock ($500,000) ($350,000);Retained earnings (above) ? ($331,000);Total liabilities and equity ? ($932,000);Cost Allocation Schedule;Price Paid $1,450,000;Book Value $476,000;Excess Cost $974,000 Amortizations;to Land ($10,000) 2002 2003;to Brand Name $60,000? ?;to Software $100,000? ?;to IPR&D $300,000? ?;to Goodwill $524,000? ?;Suaro's RE Changes Income Dividends;2002 $75,000 $0;2003 $165,000 $35,000;Project Requirements;Complete the four worksheets as follows;1. Input the consolidated information worksheet provided and complete;the cost allocation schedule by computing the excess amortizations for;2002 and 2003.;2. Using separate worksheets, prepare Pecos??? trial balances for each;of the indicated accounting methods (equity, cost, 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 consolidation;information worksheet or from the separate method sheets), prepare for;each of the three consolidating worksheets;??? Adjustments and eliminations;??? Consolidated balances;4. Calculate and present the effects of a 2003 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;2003.;Prepare a word-processed report that describes and discusses the;following worksheet results;a. The effects of alternative investment accounting methods on the;parent???s trial balances and the final consolidation figures.;b. The relation between consolidated retained earnings and the;parent???s retained earnings under each of the three (equity, cost;partial equity) investment accounting methods.;c. 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 2003.

 

Paper#26878 | Written in 18-Jul-2015

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