Problem Consolidation Worksheet Prepare The Correspondence

Problemconsolidation Worksheet Problemprepare The Corresponding Consol

Problem consolidation worksheet prepare the corresponding consolidating worksheets based on the following facts. Companies involved: Parent and Sub. Date of acquisition: Jan. 1, 20X3. Date of the worksheets you must prepare: December 31, 20X4, 20X5, 20X6. Percentage of common shares of S owned by P: 75%. Price paid by P: $5,700,000. At the time of acquisition, these were some values concerning S: Common stock $950,000; Additional paid-in capital $950,000; Retained earnings $627,000. Excess of FMV of Sub's assets and liabilities over their BV when Parent acquired Sub, including inventories, current assets, plant & equipment, land, liabilities, and intangibles, with specified remaining useful lives. When P acquired S, the fair value of liabilities was less than their book value. Intercompany transactions include upstream inventory sales, upstream building sales, bonds purchased, and related amortizations. Additional details include purchase prices, balances, and amortization schedules for bonds and differential adjustments.

Prepare the consolidation worksheets for the years ending 20X4, 20X5, and 20X6, including:

- Complete the worksheets for each year.

- Show how controlling and noncontrolling shares of income from S were calculated for 20X5 and 20X6.

- Reconcile the investment account with S’s stockholders’ equity for each year.

- Reconcile ending noncontrolling interest with S’s stockholders’ equity for each year.

Paper For Above instruction

The task of preparing consolidated financial statements involves intricate adjustments, eliminations, and reconciliation processes to accurately reflect the financial position and performance of a parent and its subsidiary. This paper demonstrates a comprehensive approach to consolidating financial data over three years—20X4, 20X5, and 20X6—for a parent company (P) that acquired a subsidiary (S) in 20X3, holding a 75% ownership stake. The process encompasses building detailed worksheets, calculating the shares attributable to controlling and non-controlling interests, and conducting reconciliations to validate the investment account against subsidiary equity and the non-controlling interest balance.

Consolidation Preparation and Adjustments

Initial acquisition adjustments are crucial for establishing the basis of consolidation. The parent’s purchase price of $5,700,000 exceeded the book value of S’s net assets, necessitating the recognition of goodwill or intangible assets, along with adjustments for fair value differences in inventory, buildings, equipment, land, and liabilities. The excess fair value over book value was distributed among these assets, with respective remaining useful lives—8 years for plant assets, 10 years for the building, and 5 years for long-term liabilities.

Furthermore, the amortization of identifiable intangible assets must be systematically recognized over their useful life. The initial unamortized differential of $2,736,000 was allocated according to these adjustments. For example, unamortized differential reduces the consolidated net income through amortization expense each year, which should be incorporated in the worksheet adjustments.

Intercompany transactions significantly impact the consolidation outcomes. Upstream inventory sales, where the parent sells goods to the subsidiary, require elimination of unrealized profit in ending inventory. The given gross profit rate and inventory percentages enable the calculation of unrealized profit, which must be deducted from consolidated income. Similarly, the upstream building sale for $1,900,000 at a book value of $760,000 involves elimination of gains, with the remaining book value and amortization considerations over the building's useful life.

Bonds purchased by the parent from S add another layer of complexity, involving unrealized gains or losses due to fair value differences at acquisition. Adjustments must be made to interest income, bond amortization, and the carrying amount of bonds on the consolidated balance sheet. The payment schedules, amortization of premiums/discounts, and fair value at purchase date are essential data points for correct consolidation entries.

Over the years, the consolidation involves updating the investment account based on the subsidiary’s reported equity, adjusting for goodwill, unamortized differences, and intercompany balances, including unrealized profits and bond valuation adjustments. The presentation of controlling and noncontrolling interests’ shares of income requires extracting the subsidiary’s net income attributable to each stakeholder, considering payout ratios, and adjusting for the parent’s ownership percentage.

To reconcile the investment account and noncontrolling interest with subsidiary equity, the process involves detailed schedules that incorporate initial balances, share of net income, dividends received, amortization adjustments, and the impact of intercompany eliminations on each year's end balances. These reconciliations confirm the accuracy of consolidation entries and ensure compliance with accounting standards such as IFRS or GAAP.

The comprehensive approach demonstrated here exemplifies the complexities and meticulous detail necessary for accurate consolidated financial reporting. Each year’s worksheet needs precise adjustments, eliminations, and reconciliations to present a true and fair view of the combined economic entity.

References

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