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 companys 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.

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 Suaros outstanding stock for $1,450,000 cash on January 1, 2020, 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)
Table Summary: Assets head spans the first two columns while Liabilities and Equity head spans the next two and is blank for the second row and the fifth and sixth rows.

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 lifeunrecognized on Suaros books)
Software	415,000	(2-year estimated remaining useful life)
In-process R&D	300,000

Additional Information

• Although at acquisition date Pecos expected future benefits from Suaros in-process research and development (R&D), by the end of 2020 it became clear that the research project was a failure with no future economic benefits.
• During 2020, Suaro earns $75,000 and pays no dividends.
• Selected amounts from Pecoss and Suaros separate financial statements at December 31, 2021, are presented in the consolidated information worksheet. All consolidated worksheets are to be prepared as of December 31, 2021, two years subsequent to acquisition.
• Pecoss January 1, 2021, Retained Earnings balancebefore any effect from Suaros 2020 incomeis $(930,000) (credit balance).
• Pecos has 500,000 common shares outstanding for EPS calculations and reported $2,943,100 for consolidated assets at the beginning of the period.

The following is the consolidated information worksheet

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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 2020 and 2021.
2. Using separate worksheets, prepare Pecoss 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:
   • Adjustments and eliminations.
   • Consolidated balances.
4. Calculate and present the effects of a 2021 total goodwill impairment loss on the following ratios for the consolidated entity:
   • Earnings per share (EPS).
   • Return on assets.
   • Return on equity.
   • Debt to equity.

Your worksheets should have the capability to adjust immediately for the possibility that all acquisition goodwill can be considered impaired in 2021.

1. Prepare a report that describes and discusses the following worksheet results:
   1. The effects of alternative investment accounting methods on the parents trial balances and the final consolidation figures.
   2. The relation between consolidated retained earnings and the parents 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 2021.

I'm on here because I don't understand the book and my teacher doesn't teach so could you please show your work so I can understand. Thank you so much in advance

Suaro $(427,000) 262,000 Pecos $(1.052,000) 821,000 ? ? ? $(165,000) ? ? 200,000 ? (201,000) (165,000) 35,000 $(331,000 1 December 31, 2021, trial balances 2 3 4 Revenues 5 Operating expenses 6 Goodwill impairment loss 7 Income of Suaro 8 Net income 9 10 Retained earnings-Pecos 1/1/21 11 Retained earnings-Suaro 1/1/21 12 Net income (above) 13 Dividends declared 14 Retained earnings 12/31/21 15 16 Cash 17 Receivables 18 Inventory 19 Investment in Suaro 20 21 22 23 Land 24 Equipment (net) 25 Software 26 Other intangibles 27 Goodwill 28 Total assets 29 30 Liabilities 31 Common stock 32 Retained earnings (above) 33 Total liabilities and equity 195,000 247,000 415,000 ? 95,000 143,000 197,000 341,000 240.100 85,000 100,000 312,000 145,000 $ 932,000 (1,537,100) (500,000) ? ? (251,000) (350,000 (331,000) $(932,000) 1,450,000 476,000 974,000 (10,000) 60,000 100,000 300,000 524,000 Amortizations 2020 ? 35 Fair-value allocation schedule 36 Price paid 37 Book value 38 Excess initial value 39 to land 40 to brand name 41 to software 42 to IPR&D 43 to goodwill 44 45 Suaro's RE changes 46 2020 47 2021 2021 ? ? ? ? ? ? ? Income 75,000 165,000 Dividends 0 35,000 Suaro $(427,000) 262,000 Pecos $(1.052,000) 821,000 ? ? ? $(165,000) ? ? 200,000 ? (201,000) (165,000) 35,000 $(331,000 1 December 31, 2021, trial balances 2 3 4 Revenues 5 Operating expenses 6 Goodwill impairment loss 7 Income of Suaro 8 Net income 9 10 Retained earnings-Pecos 1/1/21 11 Retained earnings-Suaro 1/1/21 12 Net income (above) 13 Dividends declared 14 Retained earnings 12/31/21 15 16 Cash 17 Receivables 18 Inventory 19 Investment in Suaro 20 21 22 23 Land 24 Equipment (net) 25 Software 26 Other intangibles 27 Goodwill 28 Total assets 29 30 Liabilities 31 Common stock 32 Retained earnings (above) 33 Total liabilities and equity 195,000 247,000 415,000 ? 95,000 143,000 197,000 341,000 240.100 85,000 100,000 312,000 145,000 $ 932,000 (1,537,100) (500,000) ? ? (251,000) (350,000 (331,000) $(932,000) 1,450,000 476,000 974,000 (10,000) 60,000 100,000 300,000 524,000 Amortizations 2020 ? 35 Fair-value allocation schedule 36 Price paid 37 Book value 38 Excess initial value 39 to land 40 to brand name 41 to software 42 to IPR&D 43 to goodwill 44 45 Suaro's RE changes 46 2020 47 2021 2021 ? ? ? ? ? ? ? Income 75,000 165,000 Dividends 0 35,000