ACC 405 Project One: A Complete Guide to Success

Introduction

ACC 405 (Advanced Accounting) often requires students to complete a major assignment called Project One. This project tests your ability to consolidate financial statements, prepare elimination entries, compute goodwill, allocate noncontrolling interests, and present a cohesive consolidation worksheet and memo. The goal is to simulate real world accounting challenges in mergers and acquisitions, group accounting, and consolidation under accounting standards.

If you approach Project One methodically, you can not only complete the assignment but also deepen your understanding of complex accounting techniques. This article outlines what ACC 405 Project One typically involves, step by step methodology, common pitfalls, tips for excellence, and a sample outline you can adapt for your own scenario.

Purpose and Objectives of Project One

Project One is designed to test several advanced accounting skills, especially in the area of consolidations and business combinations. The objectives usually include:

• Understanding how to prepare consolidation entries to eliminate intercompany balances

• Calculating goodwill or bargain purchase, and any impairment

• Allocating income to controlling and noncontrolling interests

• Adjusting for fair value differences on the acquisition date

• Preparing consolidated financial statements (balance sheet, income statement)

• Writing a professional consolidation memo explaining your results and assumptions

In short, Project One bridges theory and practice. You are placed in the role of an accountant for a parent company that has acquired one or more subsidiaries, and you are asked to produce the consolidated results accurately and transparently.

Components of ACC 405 Project One

While the exact components may differ by instructor or institution, here are the common parts you will encounter:

1. Scenario / Background Information
   You will be given a scenario: e.g. “Posey Company acquired 90 percent of Stargell Corporation” with data such as trial balances of the parent and subsidiary, fair value adjustments, intercompany transactions, impairment losses, etc.

2. Supporting Calculations
   These include:

   • Computing goodwill or bargain purchase

   • Adjustments for fair value differences on assets or liabilities

   • Amortization or depreciation of those differences

   • Allocation of the subsidiary’s net income to the parent and noncontrolling interest

   • Calculation of noncontrolling interest at acquisition and at year-end

   • Any gains or losses from intercompany bond retirements or sales

3. Consolidating Journal Entries
   You will prepare journal entries (also called elimination entries) such as:

   • Eliminate the investment account of parent vs subsidiary’s equity accounts

   • Adjust for fair value differentials

   • Eliminate intercompany payables / receivables or intercompany sales

   • Recognize noncontrolling interest and any impairment or goodwill adjustments

4. Consolidation Worksheet / Working Paper
   A multi-step worksheet that brings together parent, subsidiary, adjustments, and consolidated balances. It helps ensure that assets, liabilities, equity, revenue, and expense balances flow correctly into the consolidated statements.

5. Consolidated Financial Statements
   From the worksheet, you prepare:

   • Consolidated balance sheet

   • Consolidated income statement

   • (Sometimes) Consolidated statement of cash flows or notes

6. Consolidation Memo / Executive Summary
   A written memo explaining your assumptions, methodology, key adjustments (such as goodwill, impairment, intercompany eliminations), and potential limitations. This is your chance to show that you understand not just how, but why, you made certain choices.

Step-by-Step Method to Complete Project One

Here is a recommended approach you can follow from start to finish:

Step 1: Read the scenario carefully and list given data

• Write down acquisition date, percentage acquired, purchase price, book values of subsidiary’s net assets, fair value adjustments, and intercompany transactions.

• Note whether fair value adjustments affect land, buildings, equipment, intangible assets, or liabilities.

• Identify any impairment or value declines specified.

Step 2: Compute acquisition differential and goodwill

• Calculate the excess of purchase price over book value of net identifiable assets (or the reverse, if it is a bargain purchase).

• Allocate the differential to individual assets or liabilities to reflect fair values.

• The residual amount becomes goodwill (if positive) or gain on bargain purchase (if negative).

Step 3: Adjust for depreciation or amortization of differential

• For each fair value adjustment to depreciable assets, compute additional depreciation or amortization over the remaining life.

• Make an adjustment entry for the extra expense (or lower depreciation) to reflect fair value.

Step 4: Prepare eliminations and consolidating entries

• Entry to eliminate the parent’s investment in subsidiary versus the subsidiary’s equity accounts.

• Entry to adjust for the differential depreciation.

• Entry to allocate noncontrolling interest portion of net income.

• Entry to eliminate intercompany balances (receivables/payables, sales/purchases, etc.).

• Entry to adjust for intragroup bond or debt retirements, if applicable.

Step 5: Build the consolidation worksheet

• Set up columns for parent, subsidiary, eliminations, adjustments, and consolidated.

• Populate asset, liability, equity, revenue, expense, and income accounts.

• Bring down the balances after eliminations and adjustments into consolidated totals.

• Check that debits equal credits and that the consolidated equity makes sense (controlling + noncontrolling).

Step 6: Prepare consolidated financial statements

• From the worksheet’s consolidated column, prepare a consolidated balance sheet and income statement.

• Make sure noncontrolling interest is shown properly in equity and that net income is allocated.

Step 7: Write the consolidation memo

• Begin with an introduction summarizing the acquisition scenario.

• Explain key computations: goodwill, fair value adjustments, differential depreciation, noncontrolling interest.

• Describe major elimination entries and why they are necessary.

• Note any assumptions, limitations, or judgments you made (e.g. rounding, impairment decisions).

• Conclude with a statement of consolidated financial position and performance.

Common Pitfalls and Tips

To maximize your score and avoid errors, keep the following tips in mind:

• Organize data clearly: Use a clean format for trial balances and differential calculations so you don’t mix up figures.

• Do not round prematurely: Keep decimals until final answers; rounding early can produce errors.

• Watch life of differential adjustments: If a fair value adjustment is to a depreciable asset, you need to amortize/ depreciate that differential.

• Noncontrolling interest after acquisition: Remember to include the share of net income to noncontrolling interest and cumulative share of goodwill or impairment.

• Intercompany eliminations: Do not forget to eliminate receivables and payables between parent and subsidiary. Also eliminate profits in inventory that have not yet turned into sales.

• Check credit = debit: After all adjustments and eliminations, make sure the consolidated totals balance.

• Assumptions should be explained: If the scenario does not specify something (e.g. salvage value, useful life), clearly state your assumption in the memo.

• Use consistent format and labeling: Label entries “Elimination Entry A”, “Differential Adjustment Entry B”, etc. It helps graders follow your logic.

• Proofread the memo and statements: Ensure that numbers in the memo match your worksheet, that terms are consistent, and that your narrative is logical.

Sample Outline for Project One Submission

Below is a sample structure you can adapt:

1. Title Page

   • Course, Project One, Your name, Date, Instructor

2. Table of Contents

3. Introduction / Scenario Summary

   • Brief description of acquisition

   • Entities involved, acquisition date, percentage acquired

4. Supporting Calculations

   • Differential and goodwill calculation

   • Fair value adjustments schedule

   • Depreciation / amortization of differential

   • Noncontrolling interest allocation

   • Gain or loss on intercompany bond or debt retirement

5. Eliminating and Consolidating Journal Entries

   • List each entry with description and amounts

6. Consolidation Worksheet / Working Paper

   • Columns (Parent, Subsidiary, Adjustments, Eliminations, Consolidated)

   • All accounts and final consolidated balances

7. Consolidated Financial Statements

   • Consolidated Balance Sheet

   • Consolidated Income Statement

   • (If required) Statement of Cash Flows or Notes

8. Consolidation Memo / Analysis

   • Explanation of methodology

   • Assumptions and judgments

   • Key insights (e.g. effect of fair value adjustments)

   • Limitations and possible alternative treatments

9. Appendices (if needed)

   • Additional supporting schedules

   • Detailed tables or backup calculations

How to Adapt this Guide to Your Specific Assignment

• Use the data from your scenario rather than hypothetical numbers in this guide.

• If your assignment includes multiple subsidiaries, extend the worksheet for more than one.

• If there is impairment, include an impairment test and loss allocation.

• If there are intercompany sales in inventory, eliminate unrealized profit on ending inventory.

• Always tie your memo explanations directly to the numbers in your worksheet.

Conclusion

ACC 405 Project One is a demanding but highly educational assignment. When handled correctly, it tests many of the most sophisticated accounting concepts around consolidations, acquisitions, noncontrolling interest, fair value adjustments, and financial statement presentation. By following a structured step by step method, documenting your assumptions, double checking your eliminations, and making your narrative clear, you can not only earn a strong grade but also build real confidence in advanced accounting.