HIGHER COLLEGES OF TECHNOLOGY-ADWC
Group PROJECT COVER SHEET [35%]
Course Code and Name ACC4053
(Advanced Financial Accounting ) Faculty Name
Due Date Week 15
Student Name Date Submitted
Student ID Section
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This assessment will address the following Learning outcomes:
CLO 3: Analyze disclosures in financial statements and discuss the limitations of balance sheets and issues of income statement content
CLO 4: Prepare and explain consolidated financial statements for business combinations
Declaration; Individual (or Group):
No part of this assignment has been copied from another source, (not from another group or student, an internet source or a book)
When another person’s words are used, this is shown in the text with “…” and referenced.
I (We) have submitted my (our) assignment to SafeAssign and checked for plagiarism prior to submitting for grading
No part of this assignment has been written by anyone other than me (or the members of the group named below).
I (We) have a copy of this assignment that we can produce if the first copy is lost or damaged.
Names and Signatures:
Name ……………………………………………………… Signature …………………………………
N.B. The marker may choose not to mark this assignment if the above declaration is not signed.
If the declaration is found to be false, appropriate action will be taken.
Academic Honesty Statement
Cheating is deliberately attempting to gain marks or academic credit dishonestly. Plagiarism is deliberately presenting another person’s work as one’s own without acknowledgment, and includes submitting work specifically commissioned from another for the purpose.
I understand that cheating and plagiarism are serious offences and that if I am found guilty of either of these offences I may be subject to dismissal from the Higher Colleges of Technology.
For Examiner’s Use Only
Section number Case 1
Marks Available 10 15 12.5 12.5 50
Marker Name Date
Case 1: Related party transaction disclosure (10 Marks)
a) What is the definition of related party? Give examples of related parties?
b) What are the common types of transactions that can be conducted between related parties?
c) What are the related parties’ disclosure requirements?
Case 2: Interim Reporting disclosure (15 Marks)
What is the meaning, objectives, difficulties and suggestions for improvement of interim reports?
Case 3 (12.5 marks)
Prepare consolidated financial statements subsequent to acquisition when parent has applied the equity method, initial value method and the partial equity method and preparing worksheet entries to consolidate the financial records
Recognize the complexities in preparing consolidated financial reports emerging from the passage of time, Identify the methods available for a parent company to maintain its investment in subsidiary accounts
On January 1, 2020, ALPHA Company acquired all of BETA Company’s outstanding common stock for $1,263,000 in cash. As of that date, one of BETA’s buildings with a 12-year remaining life was undervalued on its financial records by $108,000. Equipment with a 10-year life was undervalued, but only by $15,000. The book values of all of BETA’s other assets and liabilities were equal to their fair values at that time except for an unrecorded licensing agreement with an assessed value of $60,000 and a 20-year remaining useful life. BETA’s book value at the acquisition date was $1,080,000. During 2018, BETA reported net income of $150,000 and paid $45,000 in dividends. Earnings were $180,000 in 2019 with $45,000 in dividends distributed by the subsidiary. As of December 31, 2020, the companies reported the following selected balances, which include all revenues and expenses for the year:
December 31, 2020 BETA Company
December 31, 2020
Debit Credit Debit Credit
Buildings 2,310,000 690,000
Cash and receivables 75,000 135,000
Common stock 1,350,000 600,000
Dividends paid 105,000 15,000
Equipment 420,000 300,000
Cost of goods sold 750,000 180,000
Depreciation expense 150,000 90,000
Inventory 420,000 390,000
Land 495,000 375,000
Liabilities 720,000 390,000
Retained earnings 2,040,000 735,000
Revenues 1,350,000 450,000
1. If ALPHA applies the equity method, what is its investment account balance as of December 31, 2020?
2. If ALPHA applies the initial value method, what is its investment account balance as of December 31, 2020?
3. If ALPHA applies the partial equity method, what is its investment account balance as of December 31, 2020?
4. Regardless of the accounting method in use by ALPHA, what are the consolidated totals as of December 31, 2020, for each of the following accounts?
Investment in BETA
Cost of Goods Sold
5. Prepare the worksheet entries required on December 31, 2020, to consolidate the financial records of these two companies. Assume that ALPHA applied the equity method to its investment account.
6. How would the worksheet entries in requirement (d) be altered if ALPHA has used the initial value method?
Case 4: (12.5 marks)
Understand that a parent’s internal accounting method for its subsidiary investments has no effect on the consolidated financial statement
Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $510,000 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $440,000. Credit balances are indicated by parentheses.
Current assets $ 300,000 $ 220,000
Investment in Clay 510,000 0
Equipment 600,000 390,000
Liabilities (200,000) (160,000)
Common stock (350,000) (150,000)
Retained earnings, 1/1/17 (860,000) (300,000)
In 2017, Clay earns a net income of $55,000 and declares and pays a $5,000 cash dividend. In 2017, Adams reports net income from its own operations (exclusive of any income from Clay) of $125,000 and declares no dividends. At the end of 2018, selected account balances for the two companies are as follows:
Revenues $ (400,000 ) $ (240,000 )
Expenses 290,000 180,000
Investment income Not given 0
Retained earnings, 1/1/18 Not given (350,000 )
Dividends declared 0 8,000
Common stock (350,000 ) (150,000 )
Current assets 580,000 262,000
Investment in Clay Not given 0
Equipment 520,000 420,000
Liabilities (152,000 ) (130,000 )
a. What are the December 31, 2018, Investment Income and Investment in Clay account balances assuming Adams uses the:
• Equity method.
• Initial value method.
b. How does the parent’s internal investment accounting method choice affect the amount reported for expenses in its December 31, 2018, consolidated income statement?
c. How does the parent’s internal investment accounting method choice affect the amount reported for equipment in its December 31, 2018, consolidated balance sheet?
d. What is Adams’s January 1, 2018, Retained Earnings account balance assuming Adams accounts for its investment in Clay using the:
• Equity value method.
• Initial value method.
e. What worksheet adjustment to Adams’s January 1, 2018, Retained Earnings account balance is required if Adams accounts for its investment in Clay using the initial value method?
f. Prepare the worksheet entry to eliminate Clay’s stockholders’ equity.
g. What is consolidated net income for 2018?
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