Assessment 1 instructions: accounting for equity investments

 

Complete three exercises in consolidating the financial statements of a subsidiary and parent company.

Introduction

Financial reporting in the business world has changed quite significantly over the years. The procedures used to consolidate financial information, specifically those generated by separate, distinct companies in a business combination are affected by several factors, including the amount of time that has passed since acquisition and the accounting method applied by the parent company in accounting for the subsidiary. As a result, no single consolidation process can be applied to all business combinations; these must be considered on an individual case-by-case basis.

Several factors can add complexity to the consolidation process, specifically when it occurs after the date that the subsidiary is acquired. In all combinations, however, the acquiring company will use a specific accounting method to related to its investment in the acquired company. For combinations being consolidated after the acquisition date, specific procedures are required.

Preparation

The following resources are required to complete the assessment.

Complete the problems in the Assessment 1 Problems document using the related template, both of which are linked in the Required Resources for this assessment. All financial information and applicable instructions are provided.

Problem 1: Journal Entries
  • Prepare all necessary journal entries for an equity investment.
Problem 2: Consolidated Balance Sheet
  • Prepare a consolidated balance sheet for an equity investment.
Problem 3: Consolidated Balances
  • Determine consolidated asset balances for an equity investment.
  • Analyze equity investment accounting methods.
  • Determine retained earnings balances for an equity investment.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:

  • Competency 1: Consolidate financial statement information.
    • Prepare all necessary journal entries for an equity investment.
    • Prepare a consolidated balance sheet for an equity investment.
    • Determine consolidated asset balances for an equity investment.
    • Analyze equity investment accounting methods.
    • Determine retained earnings balances for an equity investment.
  • Competency 5: Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting.
    • Communicate results from accounting calculations accurately and clearly.
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