Preparation Of Consolidated Balance Sheet For Greene 540484

Preparation Of Consolidated Balance Sheetgreene Company Purchased

Prepare a consolidated balance sheet worksheet and the consolidated balance sheet as of December 31, 2017, for Greene Company and its subsidiary White Corporation, considering the purchase details, account balances, and transactions described, including depreciation adjustments, equipment sale, land sale, and equity method adjustments.

Sample Paper For Above instruction

The preparation of a consolidated balance sheet requires meticulous consideration of both companies' individual financial statements, adjustments for intercompany transactions, and the acquisition-related factors. In this scenario, Greene Company acquired 60% of White Corporation on June 3, 2012, at book value, with the remaining noncontrolling interest valued at 40%. With data provided as of December 31, 2017, including assets, liabilities, equity, and specific transactions such as equipment purchase, land sale, and depreciation, the objective is to produce a comprehensive consolidated balance sheet that accurately reflects the economic reality of the combined entity.

Step 1: Establish Baseline and Acquisition Analysis

The initial step involves understanding the acquisition details. Greene Company purchased 60% of White at book value in 2012, indicating that the fair value of the noncontrolling interest was equal to 40% and also valued at book value at that date. The purchase date information helps determine if any acquisition adjustments, like goodwill or bargain purchase, are necessary. Since the purchase was at book value and no mention of excess fair value allocation exists, we can proceed assuming no goodwill or negative goodwill is recorded at acquisition.

The current account balances at December 31, 2017, reflect the accumulated effects of operations, depreciation, and intercompany transactions. Taking into account the depreciation on equipment purchased on January 1, 2013, for $100,000 with a 10-year life, the straight-line annual depreciation amounts to $10,000, and for the period up to 2017, it is six years, totaling $60,000. Adjustments for land sale and equipment transfer are necessary to eliminate intercompany profits and reflect true asset values.

Step 2: Adjustments for Intercompany Transactions

The sale of land from White to Greene at a loss ($30,000 purchase and $20,000 sale) must be eliminated to avoid overstating land assets and recognize the unrealized loss. Similarly, the equipment sold from Greene to White at a gain ($91,000 sale from Greene to White, which later sold to third parties, suggesting profit recognition) requires elimination. Additionally, depreciation adjustments arising from equipment transferred at a profit must be accounted for—specifically, removing the unrealized gain related to this transaction over the remaining useful life.

Step 3: Preparing the Worksheet

The worksheet’s key components include:

• Consolidated assets: Combining individual asset balances with adjustments for intercompany transactions.
• Elimination entries: Removing intercompany land profit, equipment profit, and any related accumulated depreciation adjustments.
• Noncontrolling interest: Calculated based on the fair value at acquisition, which equals book value, resulting in 40% of net assets.
• Equity adjustments: Reflecting Greene's 60% ownership and including share of net income, dividends, and depreciation adjustments.

After consolidating individual accounts, eliminate the intercompany land sale profit ($10,000 unrealized loss), adjust equipment for depreciation of transferred equipment, and reflect the integration adjustments for fair value and ownership. The ending consolidated balance sheet depicts the combined financial position, excluding intra-group profits and unrealized gains or losses.

Step 4: Final Consolidated Balance Sheet

The final balance sheet shows total assets, liabilities, and equity attributable to both owners and the noncontrolling interest. Assets include adjusted land, land at cost less unrealized profit, land improvements, and equipment net of accumulated depreciation. Liabilities encompass accounts payable and notes payable. Equity sections display common stock, retained earnings adjusted for subsidiaries’ earnings, and the noncontrolling interest’s share of net assets. The balance validates, with total assets equaling total liabilities and equity after all adjustments.

Conclusion

In summary, preparing a consolidated balance sheet under these conditions involves understanding the initial acquisition details, adjusting for intercompany transactions like land and equipment sales, and ensuring proper elimination of unrealized profits. Depreciation adjustments on transferred equipment ensure asset values are accurate and reflect economic realities. The careful calculation of the noncontrolling interest provides a complete view of the consolidated entity’s financial position. This comprehensive approach ensures transparency and adherence to accounting standards for consolidation, ultimately providing stakeholders with clear, accurate financial information.

References

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