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Accounting Excel Project

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Question

Question

 

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:

 

 

Consolidated

 

information worksheet (follows).

 

Equity

 

method consolidation worksheet.

 

Initial

 

value method consolidation worksheet.

 

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:

 

 

Input

 

the consolidated information worksheet provided and complete the

 

fair-value allocation schedule by computing the excess amortizations for

 

2012 and 2013.

 

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.

 

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.

 

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.

 

 

Prepare

 

a word-processed report that describes and discusses the following

 

worksheet results:

 

The

 

effects of alternative investment accounting methods on the parent\\\\\\\'s

 

trial balances and the final consolidation figures.

 

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.

 

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.

 

 

Paper#44778 | Written in 08-Apr-2016

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