Preparation Of Consolidated Balance Sheet For Greene Company ✓ Solved

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Prepare a consolidated balance sheet worksheet in good form as of December 31, 2017, and then prepare the consolidated balance sheet as of December 31, 2017, demonstrating the financial position of Greene Company and its subsidiary White Corporation, including necessary consolidation entries based on the provided facts and balances.

Sample Paper For Above instruction

Preparing a consolidated balance sheet begins with understanding the ownership, valuation, and transactional details between parent and subsidiary companies. In this case, Greene Company owns 60% of White Corporation’s voting shares acquired at book value, with the remaining 40% noncontrolling interest valued at 40% of White’s book value. These details are fundamental to accurately consolidating the financial statements as of December 31, 2017.

Introduction

The consolidation process necessitates adjustments to reflect the economic reality that Greene Company controls White Corporation, evidenced by its majority ownership. The aim is to consolidate the balances, eliminate intra-group transactions and investments, and present the group as a single economic entity. This paper illustrates the step-by-step preparation of a consolidated balance sheet, considering acquisition details, intra-group transactions, depreciation adjustments, and investments valuation.

1. Establishing the Basic Data and Preliminary Adjustments

As of December 31, 2017, Greene's balances include cash, receivables, inventory, land, buildings, equipment, accumulated depreciation, accounts payable, notes payable, common stock, and retained earnings. White's balances similarly include cash and receivables, inventory, land, buildings and equipment, accumulated depreciation, accounts payable, and other equity accounts.

Key initial data points include Greene's investment in White, which was $141,000. The company's asset balances and liabilities are summarized, highlighting the physical and financial positions relevant to consolidation. The differentiation between book values and fair values at acquisition, especially regarding impairments or adjustments, will be critical for accurate consolidation.

2. Intra-group Transactions and Adjustments

Various intra-group transactions occurred, notably the equipment sale from Greene to White for $91,000, where Greene originally purchased it for $100,000. The equipment has a 10-year life, and depreciation must be adjusted for the remaining useful life at the end of the period, considering the sale date and depreciation method. Wealth transfer transactions like land sales from White to Greene also impact the balances, requiring adjustments to eliminate unrealized gains or losses to prevent double counting.

Additionally, depreciation adjustments for equipment purchased on January 1, 2013, involve calculating accumulated depreciation to date, recognizing depreciation expense over the equipment's life, and adjusting for intra-group sale effects. The equipment's fair value at purchase and subsequent sale impacts asset carrying amount, influencing consolidated net assets.

3. Noncontrolling Interest (NCI) Calculation

The value of NCI at acquisition was 40% of White’s book value. Current NCI share is adjusted for White's net income, intra-group transaction gains/losses, and unrealized profits. Since White sold land to Greene at a loss, this unrealized loss needs elimination through consolidation entries to reflect the true economic position and earnings attributable to NCI.

4. Consolidation Entries and Adjustments

Key consolidation entries include:

• Elimination of Greene’s investment against White's equity, adjusted for post-acquisition earnings.
• Adjustments for equipment depreciation, considering the intra-group sale and remaining useful life.
• Recognition of the noncontrolling interest’s share of net assets.
• Elimination of intra-group balances, such as receivables and payables, and intra-group sales, including land and equipment.
• Recognition of any unrealized gains or losses on intra-group land transactions.

5. Constructing the Consolidated Balance Sheet

After applying all adjustments, the consolidated balance sheet reflects the combined assets, liabilities, and equity of Greene and White, net of intra-group eliminations. The total assets include tangible assets such as land, buildings, equipment (adjusted for depreciation), and current assets. The liabilities encompass accounts payable and notes payable. Equity comprises parent’s common stock, retained earnings, and NCI. The consolidated totals should be consistent and balanced, demonstrating an accurate picture of the group’s financial position as of December 31, 2017.

6. Conclusion

The preparation of a consolidated balance sheet involves meticulous analysis and adjustment to ensure that intra-group transactions, valuation differences, and ownership percentages are properly reflected. The resulting financial statement provides a consolidated view, useful for investors, creditors, and management in assessing the overall financial health, performance, and risks of the corporate group.

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