Critical assumptions about the financial statements:

You are being presented with a statement of financial position and a statement of income for each company, separately. These are not trial balances, though you could prepare one if you wish (I dont recommend that). Download the spreadsheet, it has all of the data.

Recall that consolidating financial statements means that you will be recording adjustments to the statements, not offsetting journal entries. If you wish to reformat the statements to consolidate, you may. But the end result must be a consolidated statement of financial position and a consolidated statement of income, presented as they would be shown in a companys annual report.

Related to the item above, I likely mislead you (I should probably just say I did mislead you) on the adjustments comment in consolidating financial statements. Make sure you understand this. Any adjustments made to the statement of financial position necessarily are in the form of offsetting debits and credits. Otherwise, the statement of financial position wouldnt balance, right? However, adjustments to the statement of income may be different. There may be some that affect only one account in the statement of income. Profit in inventory is an example of this. Youll debit or credit one account in the statement of income, but there wont be an offsetting entry to another account. When recording profit in inventory in the statement of financial position, however, there will be a debit and credit that offset. The offsetting debit or credit is in retained earnings.

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Each company has completed the closing process and is presenting financial statements in accordance with GAAP.

Abex uses the equity method of accounting. Abex owns 100% of the three subsidiaries and has recorded the income of the subsidiaries in its equity accounts. Abexs statement of income includes equity income in the caption Other (income) expense. The other item in the caption for Abex is Royalty Income on a patent it developed and licensed to an unrelated company.

The information provided on the next page was obtained from accounting personnel at the four companies. You have no reason to believe it is not complete and accurate. As noted above, we are assuming that no transactions took place in the past, before the current fiscal year (2021).

This is important: The following are requirements for your submission.

o You must use the provided spreadsheet as your submission, you cannot submit a Word document. You may add additional sheets explaining your adjustments and for the final presentation of consolidated statements.

o You must use formulas wherever possible (subtotals, for example).

o Your adjustments must be supported and explained, either on the consolidation

spreadsheet or on a separate worksheet (in the same Excel workbook).

o The end result must be a consolidated (not consolidating) statement of financial

condition and a consolidated statement of income. (Consolidated statements show only the consolidated amounts and do not show the individual companies in the consolidation.) The statements must be in a format that could be printed and given to senior executives, a bank, investors, etc.

o The consolidated statements must be on a separate worksheet in your Excel file. The statements should be appropriately formatted (look at a public companys annual report for guidance on formatting). I should be able to print your consolidated statements and show them to an investor, analyst, etc. They must look professional!

This is a major assignment for the course, make sure you devote an appropriate amount of attention to it, its worth 100 points as an extended quiz. You will be graded on the correctness of your consolidation, the use of formulas, the appearance of your consolidated statements.

Beginning on the next page is information you have obtained as you prepared to consolidate the companies.

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Additional Information:

Intercompany Sales: The four companies have intercompany transactions involving inventory.

During the year, the following intercompany sales were made:

1. Abex sold to Corey: $252,500.

2. Dailey sold to Corey: $23,400.

3. Corey sold to Beta: $89,554.

4. Corey sold to Dailey: $121,000.

By company policy, all intercompany sales are priced so that the selling company has a gross profit of 30%. (For example, Abex will have a gross profit of 30% on its sales to Corey.)

Unsold Inventory: At the end of the year, only 25% of the inventory sold by Corey to Dailey has been sold to outside parties. At the end of the year, $25,000 of the inventory sold by Corey to Beta remained in inventory. Other than that, all intercompany inventory was sold to outside parties.

Intercompany Accounts: The following intercompany balances remain at year-end. Intercompany receivables are included in Accounts receivable and the related payable is included in Accounts payable.

1. Corey receivable from Dailey: $112,500.

2. Abex receivable from Corey: $51,750

Intercompany Asset Transfer: During the year, 5 acres of undeveloped land was sold by Corey to Abex. Coreys book value of the land at the time of the transfer was $75,000. The land was sold to Abex for $500,000, with the gain on the sale recorded in Other (income)/expense. The payment of $500,000 from Abex to Corey was settled before the end of the year.

In addition, Dailey sold a machine (at time of sale, cost = $85,000; accumulated depreciation = $65,000) to Abex for $105,000. The sale took place at the end of the year, so Abex has not recorded any depreciation expense (and wont until January). Dailey depreciated the machine through the end of the year.

Management Fee: Abex charges its subsidiaries a fee equal to 1% of sales (to pay for services provided by the parent company, Abex). The fee revenue has been recorded by all companies and paid (there is no receivable or payable related to this) Abex records the fee as a reduction of Administrative Expense. The subsidiaries include the expense in Other (income)/expense.

By practice, the fee is calculated and paid at the end of the year and is rounded down to the nearest even thousand dollar amount. (So, if the fee calculated to $5,349, the fee would be rounded to $5,000.)

SHOW YOUR WORK PLEASE SO I CAN LEARN HOW ITS DONE !

Abex Corp Beta Company Corey Products Dailey Publication Cash Accounts receivable Inventory Prepaid expenses Notes receivable Current Assets Land Buildings Equipment Accumulated Depreciation PP&E, net Patient Intangibles Accumulated Amortization Goodwill Intangible Assets. Net Investment in subsidiaries Other noncurrent assets TOTAL ASSETS 10.210.821 142,500,033 8.237,800 49,500 151,333 161,149,487 2,500,000 39,310,777 124,379,923 43,081,000 123,109.700 89,210,267 -64,842.999 825,777 9,887,450 12,789,450 4.125 12,375 23.319,177 391,386 3,135,000 18.312.500 -3.547,500 18,291,3861 14,012,500 -3,362,500 32,500,000 41.150.000 0 70,125 83.030,68% 11,788,774 17,380,408 14.887.900 5.890 17.670 44,080.642 294,500 4,476,400 14,725.000 -5,065,400 14,430,500 28,013,000 -7,657,000 15,750,000 36,106,000 0 100,130 94.717272 1.178.998 23.200,750 5.784,100 5.890 17,670 10,187,608 294,500 19,476,400 14.583.197 -5.165.400 29,288.897 28.013,000 -2,767,000 6,750,000 31.996,000 0 100,130 91.372.635 O 24,367.268 106,981,579 2,517,000 418.125.034 Accounts payable Accrued expenses payable Income taxes payable Employee benefits payable Current Liabilities Long-term debet Deferred income taxes Pension and other liabilities 90,100,000 23,077,321 1,201,030 2.948.401 117,326,752 111,500,000 40,675,000 8.800,175 7,425,250 1.897.575 99,000 1,031,251 10,453,076 41,250,000 3.712.500 734.250 10,602.370 4,535,963 1.578,000 1,472,522 18,188,855 25,890.0020 5,301.000 5.258,657 10,602.445 27.094,887 141.160 1.472.531 39,311,223 5.890,015 5.301.000 1.048,420 Common stock Additional and in capital Retained earnings Stockholders' Equity TOTAL LIABILITIES AND EQUITY 17,000,000 68,000,000 54.823,077 139,823,107 418.125,034 1.237.500 21.232.500 4,410,862 26,880,862 83,030,688 1,767,000 36,223.800 2,087,940 40,078,740 94,717.2721 1,610,000 39,200,477 -788,500 40,021.977 91.572,635 Sales Cost of goods sold Gross Profit Admin expense Selling expense R&D Other operating expenses Operating Income Interest expense Other (income expense Income Before Income Taxes Income tax expertise Net Income Abex Corp 1.429,942,416 663.901.836 766,040,580 270,667,671 240,026,048 188,956,676 51,069,372 13,320,811.6 2,247,052 -3.574,856 16,648,615.272 4,596,243 12,052.371.792 Beta Company 112,607,965 52.282,269 60,325,695.675 21,315,079 18,902,051 14,880,33 4,021,713 1,206,313.914 176,955 -281,319 1,311,078.453 221.880 1,089,198.453 Corey Products Dailey Publication 226,979,478 310,928,251 105,383.329 154.234 545 121.5%6,149.1971 156,693.706.36 42.963.972 38,854.276 38,100,126 52,191,527 29.993,716 41,086,947 8,106,409 14.104,580 2,431,922984 -9,543,625.873 356,682 488,601 -567.448 -777,320 2,642,689643 -9.254.906, 782 821,375 -2.175.845 1.821.314643 -7,079.061.782 Abex Corp Beta Company Corey Products Dailey Publication Cash Accounts receivable Inventory Prepaid expenses Notes receivable Current Assets Land Buildings Equipment Accumulated Depreciation PP&E, net Patient Intangibles Accumulated Amortization Goodwill Intangible Assets. Net Investment in subsidiaries Other noncurrent assets TOTAL ASSETS 10.210.821 142,500,033 8.237,800 49,500 151,333 161,149,487 2,500,000 39,310,777 124,379,923 43,081,000 123,109.700 89,210,267 -64,842.999 825,777 9,887,450 12,789,450 4.125 12,375 23.319,177 391,386 3,135,000 18.312.500 -3.547,500 18,291,3861 14,012,500 -3,362,500 32,500,000 41.150.000 0 70,125 83.030,68% 11,788,774 17,380,408 14.887.900 5.890 17.670 44,080.642 294,500 4,476,400 14,725.000 -5,065,400 14,430,500 28,013,000 -7,657,000 15,750,000 36,106,000 0 100,130 94.717272 1.178.998 23.200,750 5.784,100 5.890 17,670 10,187,608 294,500 19,476,400 14.583.197 -5.165.400 29,288.897 28.013,000 -2,767,000 6,750,000 31.996,000 0 100,130 91.372.635 O 24,367.268 106,981,579 2,517,000 418.125.034 Accounts payable Accrued expenses payable Income taxes payable Employee benefits payable Current Liabilities Long-term debet Deferred income taxes Pension and other liabilities 90,100,000 23,077,321 1,201,030 2.948.401 117,326,752 111,500,000 40,675,000 8.800,175 7,425,250 1.897.575 99,000 1,031,251 10,453,076 41,250,000 3.712.500 734.250 10,602.370 4,535,963 1.578,000 1,472,522 18,188,855 25,890.0020 5,301.000 5.258,657 10,602.445 27.094,887 141.160 1.472.531 39,311,223 5.890,015 5.301.000 1.048,420 Common stock Additional and in capital Retained earnings Stockholders' Equity TOTAL LIABILITIES AND EQUITY 17,000,000 68,000,000 54.823,077 139,823,107 418.125,034 1.237.500 21.232.500 4,410,862 26,880,862 83,030,688 1,767,000 36,223.800 2,087,940 40,078,740 94,717.2721 1,610,000 39,200,477 -788,500 40,021.977 91.572,635 Sales Cost of goods sold Gross Profit Admin expense Selling expense R&D Other operating expenses Operating Income Interest expense Other (income expense Income Before Income Taxes Income tax expertise Net Income Abex Corp 1.429,942,416 663.901.836 766,040,580 270,667,671 240,026,048 188,956,676 51,069,372 13,320,811.6 2,247,052 -3.574,856 16,648,615.272 4,596,243 12,052.371.792 Beta Company 112,607,965 52.282,269 60,325,695.675 21,315,079 18,902,051 14,880,33 4,021,713 1,206,313.914 176,955 -281,319 1,311,078.453 221.880 1,089,198.453 Corey Products Dailey Publication 226,979,478 310,928,251 105,383.329 154.234 545 121.5%6,149.1971 156,693.706.36 42.963.972 38,854.276 38,100,126 52,191,527 29.993,716 41,086,947 8,106,409 14.104,580 2,431,922984 -9,543,625.873 356,682 488,601 -567.448 -777,320 2,642,689643 -9.254.906, 782 821,375 -2.175.845 1.821.314643 -7,079.061.782