Consolidations Assessment


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Complete two exercises in accounting for outside ownership (noncontrolling interest) and eliminating intercompany transactions, resulting in unrealized gains and losses.

When one company acquires control of a subsidiary company, the ownership interest of the parent may be less than 100 percent.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

  • Competency 1: Consolidate financial statement information.
  •   Calculate intra-entity transfer account balances.
  • Competency 2: Evaluate the influence of global money markets on financial statements.
  • Determine consolidated balances.


A parent company need not acquire 100 percent of a subsidiary’s stock to form a business combination. Only control over the decision-making process is necessary—a level that has historically been achieved by obtaining a majority of the voting shares. Ownership of any subsidiary stock that is retained by outside, unrelated parties is collectively referred to as noncontrolling interest.

A consolidation takes on an added degree of complexity when a noncontrolling interest is present. The noncontrolling interest represents a group of subsidiary owners, and their equity is recognized by the parent in its consolidated financial statements. Valuation of subsidiary assets and liabilities poses a problem when a noncontrolling interest is present and follows the acquisition method. There are any number of challenges facing accountants with respect to noncontrolling interest issues. Central to these issues is the financial statement presentation for both entities.

In Assessment 1, you analyzed the deferral and subsequent recognition of gains created by inventory transfers between two affiliated companies in connection with equity method accounting. In that case, intra-entity profits are not realized until the earning process culminates in a sale to an unrelated party. A parallel logic can be applied to transactions between companies within a business combination. Such sales within a single economic entity create neither profits nor losses.

The opportunity for such direct acquisition, especially of inventory, is often the underlying motive for the creation of the business combination. Because the transaction was not made with an outside, unrelated party, the sales and purchases created by the transfer must be accounted for by accountants with each entity. This is true regardless of the asset, be it inventory, land, or depreciable assets.

Question to Consider

To deepen your understanding, you are encouraged to consider the questions below concerning consolidations and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

  • What accounting and reporting are appropriate for a noncontrolling interest?
  • How are additional stock purchases by a parent corporation in its subsidiary consolidated?
  • How are subsidiary revenues and expenses reported on a consolidated income statement when the parent gains control during the current accounting period?
  • What are the accounting and reporting effects, if the parent buys or sells shares of a subsidiary?
  • What are the accounting and reporting effects of intra-entity asset transfers?
  • What are the balance sheet effects of intra-entity transactions when a noncontrolling interest is present?
  • Why would a corporation choose one type of interest over the other when purchasing a stake in another corporation?
  • What are the advantages and disadvantages of each interest type for the acquiring and subsidiary corporation?

Consider the following case:

In 2001, PepsiCo and the Quaker Oats Company reached an agreement to become one company. Refer to the associated New York Times article and the SEC document linked in the Suggested Resources under the Internet Resources heading when considering the following:.

  • What type of marriage does this represent?
  • Who are the winners and losers?
  • Could this marriage happen today?

Push-down accounting is a method of accounting in which the financial statements of a subsidiary are presented to reflect the costs incurred by the parent company in buying the subsidiary, instead of the subsidiary’s historical costs. The purchase costs of the parent company are shown in the subsidiary’s statements. Although the use of push-down accounting for external reporting is limited, this method has gained favor for internal reporting purposes.

  • Why has push-down accounting gained popularity for internal reporting purposes?


Click the links provided to view the following resource:

Suggested Resources

                Carmichael, D. R., & Graham, L. (2012). Accountants’ handbook, volume 1: Financial accounting and general topics (12th ed.). Hoboken, NJ: John Wiley & Sons.

  • Chapter 20, “Partnerships and Joint Ventures.”
Internet Resources

Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.


Hoyle, J. B., Schaefer, T., & Doupnik, T. (2014). Fundamentals of advanced accounting (6th ed.). New York, NY: McGraw-Hill Education. 

  • Chapter 4, “Consolidated Financial Statements and Outside Ownership.”
  • Chapter 5, “Consolidated Financial Statements – Intra-Entity Asset Transactions.”

Assessment Instructions

Complete Exercises 1 and 2 in the Consolidations Excel Workbook, linked in the Required Resources for this assessment. All financial information and applicable instructions are provided on each exercise worksheet

Exercise 1: Consolidated Balances

  • Determine consolidated balances.

Exercise 2: Financial Statement Balance Adjustments

  • Calculate intra-entity transfer account balances.

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