Advanced Accounting I Consolidation & Financial Statement Project

Project Design -

The project is designed to reinforce acquisition and consolidation accounting skills under situations you may encounter in practice. Additionally, the project requires you to prepare a full set of consolidated financial statements, including a relatively complex statement of cash flows.

Background -

You recently accepted the controller position for Java the Hut, a regional coffee chain.

The owner informs you that a complete financial statement package will be required as part of a new bank loan compliance requirements ("covenants").

Prior to your arrival, the company had one accountant and relied heavily on the auditors in the preparation of financial statements. With the new controller position, the expectation is that you will assume the preparation of financial statements.

On your first day of work on April 1, 2012, the Java the Hut accountant informs you that there were a number of transactions in the first quarter of 2012 that she was unsure of the appropriate accounting. Consequently, she recorded the cash activity in Other Assets - Holding account as a temporary holding account. The good news is that the Java the Hut accountant maintained excellent detail of the various transactions and has a series of supporting schedules for you.

The project reflects a "real-life" challenge in that you are responsible for accounting issues months following the actual transaction. In this case, an acquisition was completed on 1/1 and you are now responsible for acquisition accounting and consolidating financial statements for the first three months, or first quarter.

Project Requirements -

Eliminate Other Assets - Holding account balance on Java the Hut Ledgers

1. Prepare the appropriate journal entries to recognize the first quarter transactions, currently reported in Other Assets - Holding in the balance sheet of Java the Hut (Parent Company) outlined in Schedule 1.

The goal of the journal entries is to eliminate the balance in the Other Asset - Holding account with new accounts to reflect the appropriate accounting recognition.

Prepare Acquisition Journal Entry to reflect fair values of New Castle Coffee on 1/1

2. Prepare the acquisition accounting analysis of New Castle Coffee using the information in Schedule 2 and Schedule 2A.

3. Prepare the acquisition journal entry for New Castle Coffee based on your work above.

4. Using the journal entry in Number 3, compare the journal entry values by account and amount and identify all differences compared to Schedule 2.

Adjust Schedule 3 for Acquisition Values

Because the project uses a situation you may encounter in practice, the reported results of New Castle Coffee on 3/31 included in Schedule 3 do not include any adjustments for the acquisition. Remember that the accounting department of New Castle Coffee would keep functioning as if the acquisition never occurred until new values are established. In practice, this is often a number of months following an acquisition to complete the appropriate accounting.

5. Using only the Balance Sheet Amounts in Schedule 3, calculate new balances by using the differences identified in Number 4 above and adding/subtracting to Schedule 3 amounts.

Only the Cash Account through Retained Earnings are required to be adjusted

For example:

Land

Schedule 3 Reported = $50,000

Increase in Acquisition Value + 10,000

Schedule 3 Adjusted = $60,000

Recognize subsidiary earnings on Java the Hut (Parent) Ledgers.

6. On Java's books, prepare the appropriate journal entries to recognize the first quarter accounting for NCC Coffee (Calculated from Trial Balance in Schedule 3) and Newark Coffee earnings (Schedule 6) below.

Prepare Consolidating Worksheets for the Income Statement and Balance Sheet

7. Prepare journal entries to recognize the intercompany transactions and eliminations identified in Schedule 6. Any supporting calculations should be included.

8. Prepare consolidating worksheets for the income statement (first quarter of 2012) and for the balance sheet (as of March 31, 2012).

• All adjustments included in the steps to this point should be included
• It is recommended that you utilize the consolidating worksheet formats we will cover in class
• Consolidating worksheets should utilize spreadsheet software

Prepare Consolidated Financial Statements for the Bank Reporting Package

Income Statement & Balance Sheet

9. Prepare consolidated financial statements for the bank reporting requirement outlined in the Background section above:

• Income Statement for the first quarter of 2012 (Multi-Step Format -See Format in Schedule 7)
• Balance Sheet as of March 31, 2012 (Classified Format - See Format in Schedule 7)

Statement of Cash Flows

10. Prepare consolidated Statement of Cash Flow using the indirect method for the first quarter of 2012.

• Use the financial statements in Number 8 or 9 as the basis to prepare the statement of cash flow.
• Regarding capital expenditures, the change in the Construction in Progress ("CIP') should be assumed to equal capital expenditures.

Preparation Reference & Guidelines - Financial Statements

• Schedule 7 referenced below includes a consolidating income statement and balance sheet worksheet examples. Schedule 7 also includes the appropriate accounts for your financial statements, except for those accounts that are eliminated in the consolidating process.
• The Statement of Cash Flow should use the format covered in our class examples.
• Remember, financial statements headings and presentation format should be used.

Attachment:- Assignment File.rar