Consolidation Project

PROJECT INSTRUCTIONS

You are to work on your project by yourself. Since the projects are similar (but not the same), it will be considered cheating to look at someone else’s project or copy parts of it. For help, you should ask the professor. (Asking theoretical questions of a fellow students is not cheating and is acceptable)

Consolidation Project

A. Consolidation

(1) You are to prepare a standard consolidating worksheet for the year ended December 31, 2020, as shown in your particular project. Make sure your worksheet states it is for 12/31/2020.

(2) Your consolidating worksheet must be accompanied by a schedule of all the consolidating adjusting entries with adequate explanation of each entry and number or letter reference into the worksheet.

(3) You will need to prepare a schedule allocating the acquisition cost. Prepare any other schedules you deem necessary for calculation of your consolidating entries.

(4) You will need schedules of how you allocated equity and net income to the non-controlling shareholders.

(5) All your worksheets must be in Excel. Every worksheet must be dated with the date you prepared it and have your initials at the top. You should use Excel formulas and referencing where possible and efficient.

B. Financial Statements

(1) You are to prepare consolidated balance sheet and consolidated income statements in accordance with GAAP (without notes) as of December 31, 2020, and for the year then ended.

(2) Your financial statements should be properly formatted with titles, dollar signs, and underlining of totals. Your financial statements can be either in Excel or Microsoft Word. You can find proper formatting by looking at a sample of any public company.

Consolidation Project

Project Advice

This is a comprehensive consolidation, not easy. You must break it down to its pieces and work methodically. You cannot just attack it as best you see fit.

1.         Your consolidating entries should have numbers or letters and look like the examples in the text. Those labels should carry to your consolidating worksheet, see Exhibit 5.4. You should put debits and credits in different columns and write explanations: see Comprehensive Illustration at the end of Chapter 4 where they give six worksheet entries in b to see layout of consolidating entries and written explanations. Debits must always equal credits, so as you move along your trial balance will balance. I cannot follow what you did. Look at Exhibit 5.4 and how the text told you how to do all consolidations.

2.         You must break the entries down step by step (my entry letters got changed here in the email, but this is not the point)

a.         First, you must do an Entry S to eliminate subsidiary capital against Parent investment and noncontrolling share:

i.          Debit Subsidiary capital to close it to 0

ii.         Debit Subsidiary additional paid in to close it to 0

iii.        Debit the Subsidiary retained earnings at acquisition date to close it to 0

iv.        Credit Parent investment in Subsidiary for acquisition book value portion 60%

v.         Credit Noncontrolling share of book value 40% at date of Parent acquisition

b.         Next, allocate the stepped-up value in Entry A:

i.          Debit asset being increased in value

ii.         Credit the Parent investment in Subsidiary (together with Entry S, this should eliminate the Parent investment in Subsidiary)

iii.        Credit noncontrolling interest in the stepped up value (together with Entry S this should bring noncontrolling interest to its fair value at date of Parent acquisition

c.         Now going forward after acquisition, eliminate the profit from the sale of the land from sub to parent that is in retained earnings at end of year 1:

i.          Debit subsidiary retained earnings by the profit

ii.         Credit land by the profit

d.         Then you must take the year 1 intercompany profit out or year 1 retained earnings and move to adjust year 2 COS:

i.          Calculate the intercompany profit by multiplying unsold inventory by profit margin (I think it is 40%)

ii.         Debit subsidiary retained earnings by the profit

iii.        Credit Cost of good sold by the profit

e.         Then you must take the year 2 intercompany profit out or year 2 income:

i.          Calculate the intercompany profit by multiplying unsold inventory by profit margin (I think it is 40%)

ii.         Debit subsidiary earnings by the profit

iii.        Credit Cost of goods sold by the profit

f.          You must correct subsidiary earnings for the amortization of the stepped-up value of the customer list over 20 years, text calls this Entry E:

i.          Debit amortization expense year 2

ii.         Debit retained earnings amortization expense year 1

iii.        Credit customer list for two years amortization

g.         The Parent is using equity method, so the Parent added its share of equity earning to the investment and that must be eliminated from parent income for the year. Parent bought Sub for $840,000, but his investment at start of year 2 is $1,011,000. The amortization of step must be eliminated:

i.          Debit parent equity in earnings of subsidiary

ii.         Credit investment in subsidiary

h.         Eliminate the dividend from the subsidiary to the parent (60% of dividend)

i.          Debit parent investment in subsidiary

ii.         Credit dividend declared

i.          Eliminate intercompany balance sheet balance

i.          Debit A/P

ii.         Credit A/R

j.          Eliminate intercompany sales

i.          Debit sales

ii.         Credit cost of sales

k.         Defer profit in ending inventory not yet sold to outsiders

i.          Debit cost of sales

ii.         Credit inventory 12/31

Remember that you must eliminate the Parent’s balance of its investment in the subsidiary, you have to get to the correct ending equity and break out the noncontrolling share.