Accounting Excel Project

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.

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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.

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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

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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.