● 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 2018.
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Excel Spreadsheet Project .
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PART 1 & 2
The Excel Spreadsheet Project is a computer project designed to help you develop spreadsheet skills. You will prepare consolidated worksheets using formulas that illustrate the consolidation entries needed when the parent uses the equity method, partial equity method, or initial value method of accounting for its investment in a subsidiary. The detailed information for this project is found at the end of Chapter 3 under the heading of “Computer Project.”
You are to create an Excel workbook with 4 tabs as follows:
- Tab 1 – Consolidated Information Worksheet
- Tab 2 – Equity Method
- Tab 3 – Partial Equity Method
- Tab 4 – Initial Value Method
This assignment encompasses the first 3 project requirements as listed in the Computer Project within the textbook.
Hint: The consolidated worksheets that you are preparing are not for the year of acquisition, but for the succeeding year. Therefore, when determining the beginning parent company retained earnings and Investment account balances for the year in question under the initial value and partial equity methods, remember that those balances will be converted to the equity method as of the beginning of the year in the consolidated worksheet via the *C entry. The beginning retained earnings and investment account balances based on parent company records will differ under each of the three methods. The difference will be reflected in the *C entry.
While the Excel Spreadsheet Project is an individual project, you may collaborate with the members of your Group Discussion Board group, assisting one another with questions, problems, and ideas.
Excel Spreadsheet Project .
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You will complete the Excel Spreadsheet Project in 2 parts. For Part 1, you must complete Tab 1 with the fair value allocation schedule. Then you will begin Tabs 2–4, completing trial balances for Pecos and Suaro. Excel Spreadsheet Project Part 1 encompasses the first 2 project requirements stated in the textbook. (Below)
For Part 2, you must complete all remaining information for Tabs 2–4. Excel Spreadsheet Project Part 2 encompasses the third project requirement stated in the textbook.
Text Book Page
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 com- puter and a spreadsheet software package (e.g., Microsoft Excel, etc.). The use of these tools allows you
152 Chapter 3
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.
Consolidated Worksheet Preparation
You will be creating and entering formulas to complete four worksheets. The first objective is to dem- onstrate 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
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Pecos Company acquired 100 percent of Suaro’s outstanding stock for $1,450,000 cash on January 1, 2017, 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 remaining 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 2017 it became clear that the research project was a failure with no future economic benefits.
- During 2017, Suaro earns $75,000 and pays no dividends.
- Selected amounts from Pecos and Suaro’s separate financial statements at December 31, 2018, are presented in the consolidated information worksheet. All consolidated worksheets are to be prepared as of December 31, 2018, two years subsequent to
- Pecos’s January 1, 2018, Retained Earnings balance—before any effect from Suaro’s 2017 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.
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 2017 and 2018.
- Using separate worksheets, prepare Pecos’s trial balances for each of the indicated accounting meth- ods (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 2018 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 acquisi- tion goodwill can be considered impaired in 2018.
- 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 2018.
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