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. Page 142 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 1. 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. 1. During 2012, Suaro earns $75,000 and pays no dividends. 1. Selected amounts from Pecos and Suaro's separate financial statements at December 31, 2013, are presented i.

1. 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.
Page 142
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

2. 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

3. $(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
1. 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.
1. During 2012, Suaro earns $75,000 and pays no dividends.
1. 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.
1. Pecos's January 1, 2013, Retained Earnings balance—before
any effect from Suaro's 2012 income—is $(930,000) (credit
balance).
1. Pecos has 500,000 common shares outstanding for EPS
calculations and reported $2,943,100 for consolidated assets at
the beginning of the period.
Page 143
Following is the consolidated information worksheet.
A
B

4. 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
?

5. 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)

6. 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

7. 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

8. 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

9. 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
?

10. ?
44
45
Suaro's RE changes
Income
Dividends
46
2012
$ 75,000
$ 0
47
2013
$ 165,000
$ 35,000
Page 144
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:
3. Adjustments and eliminations.
3. Consolidated balances.

11. 1. Calculate and present the effects of a 2013 total goodwill
impairment loss on the following ratios for the consolidated
entity:
4. Earnings per share (EPS).
4. Return on assets.
4. Return on equity.
4. 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.